Yesterday the Bank raised interest rates by 0.5 percentage points to 1.75 per cent and predicted that inflation will peak at 13 per cent this year and remain high throughout 2023.
Andrew Bailey, the governor of the Bank, said with energy prices rising fast that “there is an economic cost” to Russia’s war with Ukraine and signalled Britain was on course for a difficult period of stagflation.
The news means the fiscal flexibility available to the next chancellor will be diminished, but the Foreign Secretary’s strategy to become prime minister is based on being the “hope candidate”. Therefore she did not roll back on her plan to make tax cuts, which, although popular with Tory members, has led to claims she will damage the ailing economy and preside over a new era of austerity.
“What the Bank of England has said today is, of course, extremely worrying. But it is not inevitable,” Truss said. “We can change the outcome, and we can make it more likely that the economy grows.”
Truss’ supporters tried to deflect criticism of Trussonomics by accusing Bailey of being “asleep at the wheel” and not raising interest rates sooner. Bailey responded this morning by saying doing so would have damaged Britain’s recovery from Covid.
In last night’s Sky News debate, Rishi Sunak – who has rejected calls to stand aside in the race – said his opponent’s £30bn unfunded tax cuts would cause “misery for millions”.
“We in the Conservative Party need to get real and fast – because the lights on the economy are flashing red and the root cause is inflation,” he said.
Paul Johnson, the director of the Institute for Fiscal Studies, has criticised both candidates for failing to address the biggest issue facing households – rising energy bills.
Keir Starmer – dubbed “Mr Rules” by some in his party – has been found to have breached the MPs’ code of conduct eight times after failing to register interests on time, including gifts from football teams and the sale of a plot of land.
The Labour leader has apologised to the standards commissioner, Kathryn Stone, who has said she views the breaches as “minor and/or inadvertent”.
Conservatives will make hay, however, as Starmer’s brand is that of a politician who strictly observes all rules.