'I have to protect the country' says Rishi Sunak as UK faces interest rate hike in wake of Budget

In full: Chancellor Rishi Sunak tells ITV's Robert Peston he will 'protect' the country amid concerns a rise in inflation and interest rates could hit the Treasury hard

Chancellor Rishi Sunak has told ITV he has to "protect the country" as the UK faces a potential hike in interest rates less than 24 hours after delivering the Budget.

According to the UK fiscal watchdog, the Office for Budget Responsibility, Britain’s economy will recover to its pre-pandemic level faster than expected - but soaring prices could see inflation hit its highest rate for three decades.

With around a £38bn increase in public spending and a £25bn budget stimulus - the Bank of England may well decide to put up interest rates in their meeting on Thursday.

ITV News Deputy Political Editor Anushka Asthana explains what you need to know from the Budget announcement

Just a one per cent increase in inflation and interest rates could lead to a £18 billion cost for the Treasury in the first year alone.

Responding to that prospect on ITV's Peston show, Mr Sunak said: "That is absolutely right and I've been talking about this for a long time, and when people say to me, 'well why are strong public finances so important, why do you care about it?' It's exactly for reasons like this.

"That I have to protect the country against those kinds of things, make sure we have the resilience, the buffer we need to cope with things like rising interest rates or rising inflation, and that's what I've done in this budget - start building up that protection."

"That's the right and responsible thing to do for the country."

ITV News Political Editor Robert Peston asks Rishi Sunak how he hopes to deal with rising inflation

OBR figures also revealed pain in store for household and public finances from soaring inflation, with the latest prediction showing the rate of Consumer Prices Index (CPI) is set to jump from 3.1% to an average of 4% over 2022.

It warned that news since its report was compiled suggested a peak of close to 5% in 2022 and the possibility of inflation hitting its highest rate for 30 years.

The OBR said it now believes the economy will return to its pre-Covid level at the "turn of the year" – around six months earlier than predicted in March – as it delivered a raft of economic upgrades.

How is the government affording all the new spending, and will it make a material difference in day to day life? ITV News Business Editor Joel Hills explains

Officials also revealed the Chancellor has now raised taxes more in a single year than since 1993 in the aftermath of Black Wednesday as he tries to balance the books.

This equates to a net tax rise of £16.7 billion by 2026/27 which takes into account some falling taxes and the freeze in fuel duty.

The OBR also predicted long-term scarring effects of coronavirus on the economy have also been scaled back by the independent forecaster, which has revised it down from 3% to 2%.

Is the Chancellor worried that interest rates may go up?

Quizzed by Robert Peston on the prospect, Mr Sunak said: "Well obviously interest rates are a matter for the Bank of England and for people watching I would say you should be reassured, because they have a very good track record in meeting our inflation targets, which are to have low and stable inflation.

"With regard to fiscal policy, which is my responsibility, we have invested in public services and our future growth but we've done so mindful of inflationary pressures.

"And part of the reason that I talk about strong public finances, making sure we get our borrowing down, and get our debt falling again, is because I want to protect us against future rises in interest rates, make sure we have a bit of a buffer to cope with those, and that's what this budget delivers."

Is the Chancellor doing enough to protect people on Universal Credit?

One of the major announcements in the Budget is that the Universal Credit taper rate will be reduced by 63% to 55%, meaning those claiming the benefit will take home some more money each month.

The announcement comes after 5.5 million people across the UK saw their Universal Credit payments cut by £1,040 per year, after the £20 per week uplift introduced during the coronavirus pandemic was withdrawn - a move which drew criticism from many quarters.

The Chancellor was on Wednesday night pressed by Robert Peston as to whether the changes announced in Budget go far enough in helping everyone, not just those in work.

Chancellor Rishi Sunak’s tax hikes are adding to soaring costs for households and firms Credit: Victoria Jones/PA

"You’ve chosen to help people in work. There are lots of people who are not in work, for no fault of their own. Why aren’t you helping those," Mr Sunak was asked.

"We’ve already announced before today’s budget half a billion pounds in something called the Household Support Fund," the Chancellor said.

"That will provide £100 or £150 for millions of the most vulnerable families across the country to help them with some of those bills over the winter period.

"We went further today because work is important to me.

"I’ve always talked as a Chancellor about the importance of supporting people into well-paid work and today with the National Living Wage going up and, indeed, the tax cut for those in the lowest paid work, that will substantively help.

"It will reward their efforts, incentivise people to get into work and it’s all part of our plan for jobs. And, as we’ve seen over the last year, that plan is working."

Is the cost of properly addressing the climate crisis just too great?

With COP26 just around the corner, Robert Peston asked Mr Sunak is he believed "the costs of greening our economy, of adapting to climate change, are too great" for the Treasury to properly commit.

No, the Chancellor said - pointing to the government's net zero strategy outlined last week.

"People should feel very confident that we are fully backing that plan and actually the independent forecaster, today in their report, said taken in the round, the government’s actions do put us on a path to achieving our net zero ambitions and this budget will strengthen that journey for us."

Watch the full interview with Chancellor Rishi Sunak at 10:45pm on ITV's Peston show and afterwards on the ITV Hub