Liz Truss has been accused of being ‘deeply irresponsible’ for threatening to change the Bank of England’s mandate on the brink of a recession.
Shadow Chancellor Rachel Reeves has attacked the Tory leader after Truss and her allies repeatedly questioned Bank Governor Andrew Bailey’s performance and said she would review the powers of the Bank. institution.
“This is deeply irresponsible of a Conservative leadership candidate. This creates enormous uncertainty that will hold back vital investment in our economy,” Reeves said.
“Families are seeing the bills pile up as their ability to pay diminishes. Meanwhile, the Tories are once again playing the blame game instead of taking responsibility for the past 12 years of economic mismanagement that has left the UK particularly vulnerable to shocks.
Labor pointed out that the average inflation rate from 1979 to 1997, when the Bank became independent, was 6%, peaking at 19%. Over the next 25 years, it averaged 2%.
The Bank’s Monetary Policy Committee raised interest rates by 0.5 percentage points on Thursday and issued a grim economic forecast pointing to a five-quarter recession through the end of 2023. Inflation, already at a 9.4% high in 40 years, is expected to hit 13% and remain high through 2023.
Business Secretary Kwasi Kwarteng, widely seen as a potential chancellor under Truss, told Sky News on Friday: “The job of the Bank was to deal with inflation. They have a 2% inflation target, that’s actually their mandate. And now the inflation is rising [to] two-digit digits. So clearly, something went wrong.
When asked if the Bank would retain its independence, he said “absolutely” but also outlined potential interventions.
“We have to re-examine what the mandate is and how they can actually fulfill that mandate,” he said, adding, “You have to look at how the Bank is organized and what the objectives are.”
Truss also said his planned tax cuts are a better way to help families deal with the cost of living crisis than “handouts.”
When asked in an interview with the Financial Times what measures she intended to use to help families manage their growing fuel bills this winter, the Foreign Secretary insisted on the fact that tax cuts were the way to go, adding, “I would do things in a conservative way to reduce the tax burden, not hand out handouts.
Under the legislation that underpins the Bank’s independence, the Chancellor confirms the mission annually. If Truss becomes prime minister, it would give his new chancellor a chance to vet him ahead of the emergency budget she has promised to keep.
However, former Labor minister Ed Balls, who drew up the Bank’s independence plan when he was economic adviser to Gordon Brown, dismissed the idea of a change in focus.
“We can confidently say that the current inflation and growth challenges are in no way caused by the Bank’s mandate, that the Bank has all the tools, powers and flexibility it needs within the framework of the current mandate and that changing the mandate would do no good and almost certainly a lot of harm,” he said.
Some Tory MPs have claimed the Bank moved too slowly to raise interest rates to stifle inflation, but Bailey denied that on Friday.
“I’m sorry, I disagree with that point,” he said. Instead, he told BBC Radio 4’s Today programme: “What’s happened is there’s been a series of big shocks on the supply side, most of which were outside… I would challenge anyone sitting here two years ago saying ‘there is going to be a war in Ukraine’.
A Truss supporter, Attorney General Suella Braverman, suggested earlier this week that the Bank’s independence should be reconsidered. But Bailey insisted: “Central bank independence is critically important in our view. Our job is to bring inflation back to target.
Another Truss supporter, Lord Frost, published an article for the right-wing think tank Policy Exchange on Friday, saying the “most important underlying economic problem” facing the UK is “the adverse consequences of low to negative interest rates over an extended period”. In the 28-page report, Frost stresses the importance of gradually “normalizing” rates – without explicitly mentioning the Bank of England, however.
The Bank’s gloomy forecast underscored the bleak backdrop against which Truss or his leadership rival, Rishi Sunak, will take power next month.
A new poll from IpsosMori has shown just 27% of voters think the government has handled the economy well – the lowest level since the pollster began tracking it in 1998.
Chancellor Nadhim Zahawi and Prime Minister Boris Johnson were absent from Westminster when the rate hike was announced on Thursday. Zahawi is accompanying his family on vacation, but insisted he was not on vacation himself.
CBI chief executive Tony Danker said that given the scale of the impending rise in energy bills, the government should take more action now to ease the crisis. “I have no problem with people having short vacations. My fear runs much deeper is that there will be a vacuum between now and September 5. [when the new prime minister will be announced],” he said.
“We need the current Prime Minister and the current Chancellor to fill this void. We need them to make decisions. We need them to make plans. We need it to reassure businesses, markets and households that we are dealing with it. We cannot wait for September 5 to act.