Last Tuesday, the Prime Minister Sunak acknowledged that inflation is more persistent than expected, and pledged to reduce public borrowing as well as continue to take a responsible approach to public sector wages.
He stated that since the majority of borrowers (95% of housing loans issued in 2022 were fixed-rate mortgages, compared to 92% in 2019 and 77% in 2013, with this proportion gradually increasing) still benefit from fixed-rate mortgage protections, any rise in interest rates would not have a significant impact on slowing down the economy in the short term. He made it clear that the actions of the central bank are appropriate, and the government was in full support. In the coming weeks, Sunak will decide on the proposal for public sector pay increases, but ministers have hinted that implementing the recommended 6% pay rise is unlikely, in order to control inflation.
The Prime Minister reiterated his belief that all these efforts were aimed at improving the growth capacity of the economy and avoiding the possibility of economic overheating. On the other hand, he also agreed that the changes in high interest rates should be passed on to savers. Progress in this area has been particularly weak, and is set to be a key point of discussion in further talks due to be held with the Financial Conduct Authority (FCA) and banks. Sunak has expressed his full support for the FCA, which has indicated it will start exerting pressure on financial services firms by imposing a new ‘consumer duty’ from the 1st August.
Sunak stated that the government must support the Bank of England in its tight fiscal policy and supply-side reforms in order to improve the growth capacity of the economy and avoid economic overheating. Regarding how to achieve this goal, Sunak expressed his interest and appreciation for the field of artificial intelligence (AI), believing that its development can not only help cure diseases such as cancer and dementia, but also promote economic growth.
However, he also acknowledged that without certain regulations and constraints on artificial intelligence technology, it could cause ‘massive social change’. Therefore, he believes that the industry still needs to establish appropriate security measures. This autumn, the UK will host an AI security conference, but there is still a long way to go before achieving a consensus to establish a mature international regulatory body.