Liz Truss has been accused of being “highly irresponsible” for threatening to tinker with the Bank of England’s mandate on the brink of recession.
The shadow chancellor, Rachel Reeves, attacked the frontrunner of the Tory leadership after Truss and her allies repeatedly questioned the performance of the bank’s governor, Andrew Bailey, and said she would review the institution’s mandate.
“This is deeply irresponsible from a Conservative candidate for leadership. It creates enormous uncertainty that will hold back vital investment in our economy,” said Reeves.
“Families are seeing bills pile up as their ability to pay shrinks. Meanwhile, the Conservatives are once again playing the blame rather than taking responsibility for the past 12 years of economic mismanagement that has uniquely exposed the UK to shocks.
Labor pointed out that the average inflation rate from 1979 to 1997, when the Bank became independent, was 6%, peaking at 19%. In the 25 years that followed, it was an average of 2%.
The Bank’s monetary policy committee on Thursday raised interest rates by 0.5 percentage points and released dismal economic forecasts that pointed to a recession that would last five quarters until the end of 2023. 13% and will remain increased until 2023.
Business secretary Kwasi Kwarteng, widely regarded as a potential chancellor under Truss, told Sky News on Friday: “The Bank’s job was to tackle inflation. They have an inflation target of 2%, that’s basically their mandate. And now inflation is getting [to] double digits. So clearly something went wrong.”
When asked whether the Bank would maintain its independence, he replied ‘absolutely’, but also described possible interventions.
“We need to look again at what the mandate is and how they can best fulfill that mandate,” he said, adding: “You need to look at how the bank is organized and what the objectives are.”
Truss has also said her planned tax cuts are a better way to help families deal with living costs than “handouts.”
When asked during an interview with the Financial Times what measures she planned to take to help families manage their soaring fuel bills this winter, the Secretary of State emphasized that tax cuts were the way to go, adding: ” I would do things in a conservative way to lower the tax burden, not hand out handouts.”
Under the legislation supporting the Bank’s independence, the Chancellor confirms the mandate annually. If Truss becomes prime minister, it would give her new chancellor a chance to review it before sticking to the emergency budget she has promised.
Former Labor Secretary Ed Balls, who drafted the Bank’s independence plan when he was Gordon Brown’s economic adviser, rejected the idea of changing the target.
“We can confidently say that the current inflation and growth challenges are in no way caused by the Bank’s remit, that the Bank has all the tools, powers and flexibility it needs within its current remit and that changing the assignment wouldn’t do any good and almost certainly do a great deal of damage,” he said.
Some Tory MPs have argued that the Bank was acting too slowly in raising interest rates to choke inflation, but Bailey denied that on Friday.
“I’m sorry, I don’t agree with that,” he said. Instead, he told BBC Radio 4’s Today programme: “What has happened is that there has been a series of major supply-side shocks, most of them outside… I would challenge anyone to come here two years ago. sit and say, ‘There’s going to be a war in Ukraine’.”
A supporter of Truss’s attorney general, Suella Braverman, suggested earlier this week that the bank’s independence be re-examined. But Bailey insisted: “Independence from the central bank is crucial in our view. Our job is to bring inflation back to target.”
Another Truss financier, Lord Frost, published a paper Friday for the right-wing think tank Policy Exchange, claiming that the “main underlying economic problem” facing the UK is “the malignant consequences of low to negative interest rates over an extended period of time.” “. In the 28-page report, Frost emphasizes the importance of a gradual “normalization” of rates, but does not explicitly mention the Bank of England.
The Bank’s gloomy forecasts underlined the grim backdrop against which Truss or its leading rival, Rishi Sunak, will seize power next month.
New polls by IpsosMori found that only 27% of voters believe the government has managed the economy well – the lowest level since the pollster started tracking it in 1998.
Both the chancellor, Nadhim Zahawi, and the prime minister, Boris Johnson, were not at Westminster when the rate hike was announced on Thursday. Zahawi goes on vacation with his family, but insists he isn’t on vacation himself.
CBI director general Tony Danker said that given the magnitude of the impending rise in energy bills, the government should take more action now to mitigate the crisis. “I have no problem with people taking short vacations. My fear is much greater, namely that there will be a vacuum from now until September 5th [when the new prime minister will be announced],” he said.
“We need the current Prime Minister and the current Chancellor to fill that vacuum. We need them to make decisions. We need them to make plans. We need them to reassure companies, markets and households that we are taking this on. We can’t wait until September 5 for action.”