During an interview with Deputy Prime Minister Oliver Dowden on Sky News last week, a presenter made a number of claims about the government’s pledge to halve inflation which require context.
We’ve contacted Sky News about some of the figures used during the interview, and will update this article if we receive a response. Broadcasters should ensure that news, in whatever form, must be reported with due accuracy and significant mistakes should be corrected quickly, in line with the Ofcom Broadcasting Code.
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What is the government’s inflation target?
While asking Mr Dowden about the government’s inflation target, the presenter claimed that “the Prime Minister said that he wanted to get [inflation] down to 2% by the end of the year.”
As Mr Dowden stated, the Prime Minister Rishi Sunak pledged in January to “halve inflation” by the end of the year.
However, meeting this target would not require inflation to reach 2% by the end of the year.
When we asked the Treasury what the starting point for this target was, it told us that when the Prime Minister first made the pledge the latest available data was from November 2022.
Indeed, when Mr Sunak announced his pledge in early January, inflation as measured by the Consumer Prices Index (CPI) stood at 10.7% (based on ONS data for November 2022).
Using this figure, meeting this target would require inflation to reach around 5.3% by December 2023.
2% is the inflation target which the government has set the Bank of England since 2003. The Bank’s Monetary Policy Committee sets the interest rate in order to meet this target.
Is the government on track to meet its target?
The presenter also questioned whether the government was likely to meet its target of halving inflation, saying: “It’s not falling at the rate the Prime Minister wanted it to, it’s slipping down ever so slightly, but halving it, it’s just not going anywhere near that.”
While it’s true that the government is not expected to reach its long-term target of 2% inflation by the end of this year, as we’ve explained, meeting the Prime Minister’s pledge of halving inflation would not require the rate of inflation to reach this level.
As of June 2023—halfway through the year—CPI stood at 7.9%, meaning that, based on a starting point of 10.7%, inflation has fallen by 2.8 percentage points.
While we can’t say for certain how inflation will change over the rest of the year, the Bank of England last week confirmed that it expects inflation to fall to 4.9% by the end of the year, which would meet the Prime Minister’s pledge.
The Bank of England says that the decrease in the rate of inflation will be driven by falling gas prices and higher interest rates—both factors outside of the government’s direct control.
It’s crucial to note that falling inflation does not necessarily mean that prices are falling. Halving inflation would still mean that prices are substantially higher than the previous year, with 5% inflation more than twice the government’s long-term inflation target of 2%.
The price of some things, perhaps most notably food, is still expected to rise above the headline rate of inflation (for example, as of June food and non-alcoholic beverage inflation stood at 17.3%, far higher than the headline inflation rate of 7.9%).
Later in the interview the presenter described the UK as an “outlier” compared to other countries, claiming “Europe is looking at 6%, America is looking at 4% in terms of interest rates”.
These interest rate figures aren’t quite correct. The European Central Bank, which controls monetary policy for the Eurozone (countries which use the Euro as their primary currency), increased interest rates in July from 3.5% to 3.75%—the joint highest level on record.
In the United States, the Federal Reserve has increased rates to a target range of 5.25%-5.5%—the highest level in the US for 22 years. This is broadly the same as the bank rate in the UK, which was increased by 0.25% to 5.25% last week.
It’s possible that the presenter intended to refer to inflation, rather than interest rates, as it is true that the UK is currently experiencing higher inflation than both the Eurozone and the US.
As of June 2023, inflation in the Eurozone is at around 5.5%, while US inflation stood at approximately 3%.
The UK currently has the highest rate of inflation in the G7 (Canada, France, Germany, Italy, Japan, the UK and the US).
Image courtesy of Nick Pampoukidis