Sound controls

Britain’s new finance minister targets inflation and ‘sound finances’

LONDON, July 18 (Reuters) – Britain’s government must focus on sound public finances and avoid fueling further inflation by inflating demand, new finance minister Nadhim Zahawi is expected to say in his first major speech on Tuesday.

Zahawi will address the City of London’s annual Mansion House dinner, where he is expected to confirm a post-Brexit overhaul of financial regulation inherited from the European Union, including Solvency II insurance rules.

However, tackling inflation is a top priority alongside boosting long-term growth, according to speech excerpts provided ahead of the event.

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“This means ensuring sound public finances to avoid pushing demand even further, helping households cope with the worst price rises in more than a generation,” he said in his speech.

“The country must be confident that we can, and will, bring inflation under control,” the speech added.

Consumer price inflation hit a 40-year high of 9.1% in May and the Bank of England expects it to top 11% in October, when regulated household energy prices are expected increase by 40%.

Zahawi’s message on public finances contrasts with that of some of the candidates in the Tory leadership race to succeed Prime Minister Boris Johnson.

Foreign Secretary Liz Truss has said she wants to reverse more than 30 billion pounds ($36 billion) in tax hikes announced by rival leadership candidate Rishi Sunak, including the resignation as minister of foreign affairs. Finance two weeks ago helped trigger Johnson’s downfall.

Zahawi made his own brief bid to become prime minister last week but failed to garner enough support from lawmakers to move forward, although he hinted at his own support for tax cuts.

Tuesday’s speech will also contain more information about the government’s plans to replace “hundreds” of EU financial regulations with local equivalents, including Solvency II changes.

This would give “UK insurers greater flexibility to invest in long-term assets like infrastructure” and increase “the competitiveness of our capital markets”.

However, the Bank of England – whose Governor Andrew Bailey will also speak at the dinner at Mansion House – has warned that reducing the amount of capital insurers must hold is not a ‘free lunch’ and could increase risks for policyholders. Read more

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Reporting by David Milliken; Editing by Toby Chopra

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