Shadow chancellor Rachel Reeves attacked the Tory leadership star after Truss and her allies repeatedly questioned the performance of Bank governor Andrew Bailey and said she would review the institution’s remit. “This is deeply irresponsible from a Conservative leadership candidate. It creates enormous uncertainty that will hold back vital investment in our economy,” Reeves said. “Families are seeing bills pile up while their ability to pay shrinks. Meanwhile, the Conservatives are once again playing the blame game rather than taking responsibility for the last 12 years of economic mismanagement which has left the UK uniquely exposed to shocks.” Labor pointed out that average inflation from 1979 to 1997, when the Bank became independent, was 6%, peaking at 19%. In the 25 years since then, it has averaged 2%. The Bank’s monetary policy committee raised interest rates by 0.5 percentage points on Thursday and published dire economic forecasts pointing to a five-quarter recession until the end of 2023. Inflation, already at a 40-year high of 9.4 %, is expected to hit 13% and remain at high levels until 2023. Business secretary Kwasi Kwarteng, widely seen as a possible chancellor under Truss, told Sky News on Friday: “The Bank’s job was to deal with inflation. They have a 2% inflation target, that’s actually their mandate. And now inflation is rising [to] two digit number. So clearly, something went wrong.” When asked if the Bank would maintain its independence, he said “absolutely” but also outlined possible interventions. “We have to look again at what the mandate is and how they can actually fulfill that mandate,” he said, adding: “You have to look at how the Bank is organized and what the objectives are.” In accordance with the legislation underpinning the Bank’s independence, the chancellor confirms the mandate annually. If Truss becomes prime minister, it will give her new chancellor a chance to review it ahead of the emergency budget she has promised to keep. But former Labor Secretary Ed Balls, who drew up the plan for the Bank’s independence when he was economic adviser to Gordon Brown, rejected the idea of changing the target. “We can say with certainty that the current challenges to inflation and growth are in no way caused by the Bank’s remit, that the Bank has all the tools, powers and flexibility it needs under its current mandate and that the changing the mandate would do no good and almost certainly a great deal of harm,” he said. Some Tory MPs claimed the Bank was too slow to raise interest rates to stifle inflation, but Mr Bailey denied this on Friday. “I’m sorry, I don’t agree with that point,” he said. Instead, he told BBC Radio 4’s Today programme: “What has happened is that there have been a number of big supply-side shocks, most of which have been outside… I would challenge anyone to sit here two years ago saying ‘we will to go to war in Ukraine”. A supporter of Truss, the attorney general, Suella Braverman, suggested earlier this week that the Bank’s independence should be reviewed. But Bailey insisted: “Central bank independence is extremely important in our view. Our job is to bring inflation back to target.” Another Truss backer, Lord Frost, published a paper for the right-wing thinktank Policy Exchange on Friday arguing that the “most important underlying economic problem” facing the UK is “the ill effects of prolonged low to negative interest rates ». In the 28-page report, Frost stresses the importance of a gradual “normalisation” of interest rates – although he does not specifically mention the Bank of England. The Bank’s bleak forecasts underlined the bleak landscape in which Truss or her leadership rival Rishi Sunak will take office next month. A new poll by IpsosMori found that just 27% of voters think the government has done a good job of managing the economy – the lowest level since the poll began tracking it in 1998. Both the chancellor, Nadhim Zahawi, and the prime minister, Boris Johnson, were absent from Westminster when the rate hike was announced on Thursday. Zahawi is accompanying his family on vacation, but insisted that he is not on vacation himself. CBI director general Tony Dunker said that given the scale of the impending rise in energy bills, the government should do more now to mitigate the crisis. “I have no problem with people taking short vacations. My fear is much deeper, which is that there will be a vacuum between now and September 5th [when the new prime minister will be announced],” he said. “We need the current prime minister and the current chancellor to fill this gap. We need them to make decisions. We need them to make plans. We need them to reassure companies, markets and households that we understand this. We can’t wait until September 5 to act.”
