The UK should ditch tax cuts, hike rates, and accept a deeper recession to avoid higher inflation, Mohamed El-Erian says

An aggressive rate hike could cause a recession, but the UK is past the point of hoping for a soft-landing, Mohamed El-Erian warned.

• The UK needs to ditch its plan to cut taxes and instead hike interest rates immediately, Mohamed El-Erian said.
• Though aggressive rate hikes could cause a recession, the UK is past the point of hoping for a soft-landing, he warned.
• El-Erian has been a vocal critic of the UK's mini-budget, which will exert more inflationary pressure on its economy.

The UK needs to abandon its plan to cut taxes and instead hike interest rates, according to top economist Mohamed El-Erian, who added that the country must accept a deeper recession to avoid sky-high inflation.

El-Erian has been a vocal critic of the UK's proposed mini-budget, which will involve hikes in government spending while slashing taxes for the wealthy. Fears of worse inflation and unsustainable deficits sent the pound to a record low against the dollar on Monday, prompting the Bank of England to start snapping up bonds on Wednesday to stabilize debt markets.

While the central bank averted an immediate financial crisis with its intervention, that's the opposite of what it should be doing to lower inflation, El-Erian warned. He urged the nation to throw out its tax-cut plan and hike rates by 100 basis points. 

"It would be a tragedy if this ends up resulting in further [tax] cuts. What we need is for the tax reductions to be withdrawn, we need the Bank of England to act on interest rates," El-Erian said in an interview with BBC on Wednesday. 

"Without [tax cuts], I would look to the Bank of England to make incredible increases in interest rates and I would accept a much deeper recession," he added.

El-Erian previously said that the turmoil in British markets was a sign of a paradigm shift in the global economy, as central banks are pivoting from quantitative easing to quantitative tightening to combat inflation. He's criticized central banks around the world for not acting on rising inflation soon enough, forcing them to raise rates too aggressively later. 

"We are now deep into the world of third- and fourth- best. There is no action that doesn't have some collateral damage to it. The least bad action right now is not to go forward with the tax cuts," he warned.