Government ministers have hinted that personal tax cuts are not on the cards until soaring prices have been brought under control as the Bank of England predicted that inflation will top 11% in the autumn.
The Bank raised interest rates on Thursday (16 June) from 1% to 1.25% - the highest point since the start of 2009.
It was the fifth increase in a row from the Bank as it tries to tame runaway inflation.
Meanwhile, Chancellor Rishi Sunak and Michael Gove appeared to indicate to fellow Conservative MPs calling for tax cuts that they would have to wait as such measures could fuel inflation figures further.
What has been said about personal tax cuts
Mr Sunak told the Bank’s Governor Andrew Bailey that fiscal policy must remain “responsible” and not “exacerbate” inflation.
In a letter to Mr Bailey, Mr Sunak wrote: “This is why, in responding to urgent cost of living pressures that people are facing, I announced a series of measures which are timely, targeted, and temporary to help households manage the squeeze on real incomes whilst not adding unnecessarily to inflation”.
Communities Secretary Mr Gove later said he agreed with Mr Sunak that tax cuts should be shelved until inflation is brought down.
Asked if that would have to wait until 2024, Mr Gove told TalkTV: “The Chancellor has the right policy… He can’t spend all of the public money that many would wish to and which, in a perfect world, we’d like to”.
He added: “You’ve got to make sure that you balance the books at a government level”.
Will inflation really reach 11%?
The Bank has raised its peak inflation prediction for October – when energy prices could go up even further – from 10% to over 11%.
This comes after consumer prices index (CPI) inflation hit a 40-year high of 9% in April when the energy price cap was hiked.
Mr Sunak has announced multi-billion pound help for struggling households, much of which is set to come in when energy bills rise again in October.
But it might prove somewhat of a double-edged sword, the Bank said, adding another 0.1 percentage points to CPI in the first year.