Britain’s Treasury chief believes the country cannot cut taxes until the inflation rate drops

Britain’s Treasury chief said Friday that taming inflation is more important than cutting taxes, resisting calls from some in the governing Conservative Party for immediate tax breaks for businesses and voters.

At a speech in London, Chancellor of the Exchequer Jeremy Hunt said “the best tax cut right now is a cut in inflation.”

The U.K.’s annual inflation rate hit a four-decade high of 11.1% in October, fueling a cost-of-living crisis and a wave of strikes by workers seeking pay raises to keep pace with rising food and energy prices. It has since eased but still reached a painful 10.5% in December and is the highest since the 1980s.

Prime Minister Rishi Sunak has promised to halve the inflation rate from those levels by the end of the year.

Hunt said he wanted Britain to be a low-tax economy but “with volatile markets and high inflation, sound money must come first” — a sign he won’t cut taxes when he makes his annual budget statement in March.

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The U.K. economy, like others around the world, has been rattled by pandemic restrictions and the shockwaves from Russia’s invasion of Ukraine. Britain also has suffered the self-inflicted damage of Liz Truss’ brief term as prime minister last year. She resigned in October after her plan for billions in unfunded tax cuts spooked financial markets, drove up the cost of borrowing and sent the pound plunging to a record low against the dollar.

Hunt was appointed to steady the economy in the final days of Truss’ seven-week tenure and was kept on by her successor, Sunak.

Inflation is higher than in the U.S. and the 20 nations that use the euro currency, with most forecasters expecting the U.K. economy to contract in the first half of 2023.

In his speech at the headquarters of news agency Bloomberg, Hunt argued that changes to financial regulations and other rules, made possible by Brexit, will help boost the U.K.’s stubbornly low productivity rate.

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Three years after Britain formally left the European Union, and more than two years after the split became complete, the Conservative government is still struggling to deliver many of the economic benefits promised by pro-Brexit politicians.

Most economists agree that Brexit has weighed down the economy by making it harder for U.K.-based businesses to trade with the 27-nation EU.

Hunt said changes “necessitated, energized and made possible by Brexit” would help “make Britain the world’s next Silicon Valley,” a leader in digital technology, green energy and the life sciences.

“We need to make Brexit a catalyst for the bold choices that will take advantage of the nimbleness and flexibilities that it makes possible,” he said, arguing that “Britain needs a more positive attitude to risk-taking” and is “too cautious compared to our U.S. friends.”

Hunt said Britain will scrap Solvency II, an EU rule that sets out how much money insurers must hold in reserve. Hunt said easing the restriction could unlock up to 100 billion pounds ($124 billion) in investment over a decade for big infrastructure and clean energy projects.

Business groups welcomed the tone of Hunt’s speech but said it lacked specifics. Confederation of British Industry chief Tony Danker said it provided “a strong framework for growth,” though Shevaun Haviland of the British Chambers of Commerce said there was “very little meat on the bones” of Hunt’s vision.

Opposition Labour Party economy spokeswoman Rachel Reeves said the Conservatives, in power since 2010, “have no plan for now, and no plan for the future.”