Liz Truss would review whether the Bank of England’s mandate is “fit for purpose”, a cabinet backer has said, suggesting she would examine its “exclusionary independence on interest rates”, as the Bank prepares for a crunch rates decision.
The attorney general, Suella Braverman, told Sky News the Tory leadership frontrunner would look again at the Bank’s powers. “Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” she said.
She added: “Liz Truss has made clear that she wants to review the mandate that the Bank of England has, so that’s going to be looking in detail at exactly what the Bank of England does and see whether it’s actually fit for purpose in terms of its entire exclusionary independence over interest rates.”
It came hours before the Bank was expected to raise interest rates by half a percentage point – the biggest increase since 1995. The energy price cap will also be changed quarterly instead of every six months, Ofgem announced on Thursday.
Truss told a Conservative hustings on Wednesday night she would alter the Bank’s mandate because of the changing economic picture. “The best way of dealing with inflation is monetary policy, and what I have said is I want to change the Bank of England’s mandate to make sure in the future it matches some of the most effective central banks in the world at controlling inflation.
“The last time the mandate was looked at was in 1997 under Gordon Brown. Things are very, very different now.”
Truss’s rival, Rishi Sunak, has said her plans for immediate tax cuts risk stoking inflation and that families would not feel the effects of the cuts because of soaring prices.
Mel Stride, the Tory MP who is chair of the Treasury select committee, said it would be “really quite dangerous” to cut taxes this autumn. “What we must do now is avoid stoking the inflation and making the problem even worse,” he said. “One of the ways you can make the problem very significantly worse is by coming forward with large-scale, tens of billions of pounds’ worth, of unfunded tax cuts.”
I added: “The big decision, fiscally, here is around tax. You have to do it in a measured way and at the right time but not start coming forward with tens of billions of unfunded tax cuts right now. I think that would be really quite dangerous.”
Most economists expect the Bank’s monetary policy committee to approve a half-percentage point interest rate increase after the governor, Andrew Bailey, said two weeks ago it would “act forcefully” if the inflation picture worsened.
Torsten Bell of the Resolution Foundation think tank said there was widespread concern in the Bank that a recession was looming.
“Some of those wider shocks are easing and that’s to do with global supply chains and due to the spikes in global commodity prices that I was just mentioning, but others are getting worse and that’s to do with the Russian war and what that’s done to energy prices,” he said.
“That isn’t going to go away, and interest rate rises are only relevant to that insofar as they prevent that becoming embedded in our wage-setting processes in the months and years ahead. They can’t do anything about that current rise in energy prices.”