Liz Truss backers step up attacks on Bank of England over inflation
Liz Truss supporters have stepped up their attack on the Bank of England’s fight against inflation, as the Foreign Secretary blamed the BoE and the Treasury for failing to avert the economic crisis Britain is facing.
Truss says she will change the BoE’s mandate to sharpen its focus on inflation, while claiming that the Treasury — until recently led by its rival Rishi Sunak — made matters worse by raising taxes.
If Truss becomes prime minister on September 5 – polls suggest she is the clear frontrunner in the Tory leadership contest – she will inherit one of the most bleak economic situations from an incoming British leader.
BoE governor Andrew Bailey set the stage for the next general election, due in 2024, forecasting 13 percent inflation, a recession extending into 2023, rising interest rates and higher unemployment rates.
While Bailey puts the blame entirely on Vladimir Putin for his invasion of Ukraine, Truss and her supporters are throwing some of the blame closer to home with what they believe is outdated thinking on the part of the BoE and the Treasury.
Suella Braverman, a key ally of Truss who has been tipped as a future Home Secretary, told Sky News: “Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard.”
Braverman said Truss would look into whether the BoE was “fit for purpose in terms of its complete foreclosure independence from interest rates”. Truss’s team later claimed the BoE’s independence was secure.
Instead, Truss’ campaign said the Secretary of State would be “more directive in determining his mandate”. Truss has said the BoE’s mandate, drafted by Labor Chancellor Gordon Brown in 1997, is ripe for review.
It is not clear what exactly she intends to do. At a Tory Hustings in Cardiff this week, she said she wanted the BoE’s mandate to match “some of the world’s most effective central banks in controlling inflation”.
She previously mentioned the Bank of Japan, which has been fighting the specter of deflation for years. But she did not specify what precise changes to the UK monetary policy framework she would seek.
Bailey noted on Thursday that Brown had set a legal goal of “price stability” but that the precise inflation rate had been set by the then government.
It has been revised in the past: In 2003, Brown changed the BoE target to 2 percent on the consumer price index — rather, it was based on a 2.5 percent target for the retail price index.
George Osborne, Chancellor of Tory, gave the central bank more latitude in 2013 about how quickly inflation can be brought back to target.
Dave Ramsden, deputy governor of the BoE, noted that from the time the bank became operationally independent in 1997 to April 2022, average CPI inflation was exactly 2 percent: right on track.
But Truss, who is campaigning insurgents against the “old groupthink” in the establishment, is clearly looking for targets to blame if she becomes prime minister.
By attacking the track record of the BoE and the Treasury, she also anticipates possible attacks by the economic ‘establishment’ on her plans to cut taxes in an immediate emergency budget, if she becomes prime minister.
This week at a hustings in Exeter, she refused to rule out the possibility of splitting the Treasury, saying: “I really think the Treasury needs to change. And it has been a block to progress.”
The BoE’s predictions are based on existing government policies, so any tax cuts that support consumer spending could extend the projected period of high inflation even longer – something policymakers will have had in mind when they voted for the biggest hike in interest rates for 27 years at this week’s meeting.
Mel Stride, Tory chairman of the Commons Treasury committee and a Sunak financier, said it would be “very dangerous” to cut taxes this fall, and warned it could make inflation worse.
Truss’s team countered: “Modest tax cuts aren’t inflationary — how can canceling a corporate tax hike that hasn’t even been passed yet and reversing a national insurance hike that only went into effect in April be inflationary?” ?”