Chancellor of the Exchequer Jeremy Hunt today declared that the British economy is demonstrating 'remarkable resilience' in the face of persistent global headwinds, while reiterating that fiscal discipline remains the cornerstone of government policy. Speaking at the annual Mansion House dinner, Hunt pointed to lower-than-expected inflation figures and a strengthening gilt market as evidence that the UK's economic strategy is bearing fruit.
'We have turned a corner,' Hunt told an audience of financiers and policymakers. 'But this is no time for complacency. The battle against inflation is not yet won, and we must continue to rebuild our fiscal buffers to withstand future shocks.'
The Chancellor's remarks come as the Office for National Statistics reported that the consumer price index eased to 3.2% in March, down from 3.4% in February and well below the peak of 11.1% in October 2022. This decline has buoyed gilts, with the yield on the 10-year benchmark falling to 4.1% from highs of over 4.5% earlier this year. For a government that spent much of 2022 fighting a bond market crisis, this is welcome relief.
However, the resilience narrative masks underlying fragilities. UK GDP grew by a meagre 0.1% in the fourth quarter of 2023, narrowly avoiding a technical recession. Business investment remains subdued, and the labour market shows signs of cooling with the unemployment rate ticking up to 4.2%. More worryingly, core inflation, which strips out volatile food and energy prices, remains sticky at 4.5%, suggesting that domestic price pressures are far from extinguished.
Hunt's insistence on fiscal discipline is therefore as much a political necessity as an economic one. With a general election looming, the Conservatives are keen to present themselves as the party of sound money, contrasting their approach with Labour's spending plans. The Treasury has already announced plans to cut public spending as a share of GDP over the next five years, a move that has drawn criticism from opposition parties and some economists who argue it risks choking off growth.
But the Chancellor has a powerful ally in the Bank of England. Governor Andrew Bailey has been equally hawkish, warning that interest rates may need to stay higher for longer to ensure inflation returns sustainably to the 2% target. The Bank's Monetary Policy Committee held rates at 5.25% in March, with some members voting for a hike. The message from Threadneedle Street is clear: fiscal and monetary policy must work in tandem.
Global factors also remain a significant risk. The conflict in Ukraine, tensions in the Middle East, and disruptions to Red Sea shipping lanes continue to threaten supply chains and energy prices. Meanwhile, the US Federal Reserve's cautious approach to rate cuts has strengthened the dollar, putting pressure on sterling and importing inflation via higher import prices.
For investors, the key question is whether the UK can sustain its relative outperformance. The FTSE 100 has hit record highs this year, driven by a weak pound and a rotation into value stocks. But capital flight remains a concern: the UK has seen net outflows of portfolio investment in recent quarters as international investors seek higher returns elsewhere.
Hunt's speech attempted to address these anxieties by announcing a new 'UK Growth and Resilience Fund' designed to attract long-term capital into infrastructure projects, and a review of the regulation of pension funds to encourage more domestic investment. Whether these measures will be enough to foster a genuine recovery remains to be seen. The Chancellor's mantra of 'sound money, sustainable growth' may play well in the City, but on the high street and across the country, the cost of living continues to bite.
In the end, the resilience of the UK economy will be tested not by statistics but by the lived experience of its citizens. And as the Chancellor himself acknowledged, the road ahead is long. 'We have made progress,' he said. 'But the work of rebuilding our economy is only just beginning.'
