The Bank of England is predicted to increase interest rates later today, possibly by half a percentage point, and the Resolution Foundation says that inflation could reach 15 per cent next year. (Read Emma’s explainer on when higher interest rates might bring down inflation here.)
Since Rishi Sunak realised telling Conservative members they can’t have inflationary tax cuts wouldn’t make him prime minister, inflation has not featured heavily in the leadership contest. The frontrunner, Liz Truss, who secured the coveted backing of the former chancellor Sajid Javid last night, is content offloading the problem to the economists in Threadneedle Street.
Truss has repeatedly said she wants to review the Bank of England’s mandate. At last night’s hustings in Cardiff, she took this further, committing to changing the Bank’s mandate “to make sure in the future it matches some of the most effective central banks in the world at controlling inflation”. What this would mean in practice is unclear. Presumably, she doesn’t plan to outsource the UK’s monetary policy to other central banks. That wouldn’t help her “take back control” credentials. Whatever she meant, her intervention shows her main plan for inflation is to blame the Bank.
There’s a growing consensus among commentators that Labour has underestimated the threat Truss poses. With every hustings, the Foreign Secretary’s performance has become more relaxed and assured. She has proven herself a better performer than many gave her credit for, myself included. Part of that success lies in her embracing her awkwardness rather than being ashamed of it – much like Boris Johnson embraced the gaffe. Any complacency should be quickly jettisoned from Keir Starmer’s office.
However, Truss remains vulnerable on policy. Her anti-establishment and optimistic persona won’t mean much to people unable to pay the bills. Truss’s planned tax cuts, as Philippa points out, won’t compensate for the rise in the cost of living. Ruling out the possibility of a snap general election in the autumn, as prime minister Truss will need something to show for two years in office at the next general election. And if inflation remains high and growth low, then blaming the mandate of the Bank of England won’t be enough.