Truss accused of being ‘deeply irresponsible’ for threatening to tinker with Bank of England mandate

Liz Truss has been accused of being “deeply irresponsible” for threatening to tinker with the Bank of England’s mandate on the brink of a recession.

Britain’s shadow chancellor, Rachel Reeves, attacked the Tory leadership front-runner after Ms Truss and her allies repeatedly questioned the performance of the bank’s governor, Andrew Bailey, and said she would review the institution’s remit.

“This is deeply irresponsible from a Conservative leadership candidate. It creates huge uncertainty that will hold back vital investment in our economy,” Ms Reeves said.

“Families are seeing the bills pile up while their ability to pay shrinks. Meanwhile, the Conservatives are once again playing the blame game instead of taking responsibility for the past 12 years of economic mismanagement that has left the UK uniquely exposed to shocks.”

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Labour pointed out that the average inflation rate from 1979 to 1997, when the bank was made independent, was 6 per cent, peaking at 19 per cent. In the 25 years since, it has averaged 2 per cent.

The bank’s monetary policy committee increased interest rates by 0.5 percentage points on Thursday, and published dire economic forecasts pointing to a recession lasting five quarters until the end of 2023. Inflation, already at a 40-year UK high of 9.4 per cent, is expected to hit 13 per cent and remain elevated through 2023.

Business secretary, Kwasi Kwarteng, widely viewed as a potential chancellor under Ms Truss, told Sky News on Friday: “The job of the bank was to deal with inflation. They’ve got a 2 per cent inflation target, that’s actually their mandate. And now inflation is getting [to] double digits. So clearly, something’s gone wrong.”

When asked if the bank would keep its independence, he said “absolutely” but also described potential interventions.

“We need to look again at what the mandate is and how best they can actually fulfil that mandate,” he said, adding: “You’ve got to look at how the Bank is organised and what the targets are.”

Under the legislation that underpins the bank’s independence, the chancellor confirms the remit annually. If Ms Truss becomes prime minister, this would give her new chancellor the opportunity to review it before the emergency budget she has promised to hold.

However, the former Labour minister Ed Balls, who drew up the plan for bank independence when he was Gordon Brown’s economic adviser, rejected the idea of changing the target.

“We can confidently say that the current inflation and growth challenges are not in any way caused by the bank’s remit, that the bank has all the tools, powers and flexibility it needs within the current remit and that changing the remit would do no good and almost certainly a great deal of harm,” he said.

Some Tory MPs have claimed that the bank acted too slowly in increasing interest rates to choke off inflation, but Ms Bailey denied that on Friday.

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“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 there has been a series of big supply-side shocks, most of which were outside ... I would challenge anybody to be sitting here two years ago saying ‘there is going to be a war in Ukraine’.”

One Truss supporter, the attorney general, Suella Braverman, suggested earlier this week that the Bank’s independence should be re-examined. But Bailey insisted: “Central bank independence is critically important in our view. Our job is to get inflation back down to target.”

Another Truss backer, David Frost, published a paper for the rightwing think-tank Policy Exchange on Friday, claiming that the “most significant underlying economic problem” facing the UK is “the malign consequences of low to negative interest rates over a prolonged period”. In the 28-page report, Mr Frost stresses the importance of gradually “normalising” rates — though does not mention the Bank of England explicitly.

The bank’s gloomy forecasts underlined the grim backdrop against which Ms Truss or her leadership rival, Rishi Sunak, will take power next month.

New polling by Ipsos/Mori showed that just 27 per cent of voters believe the government has done a good job of managing the economy — the lowest level since the pollster began tracking it in 1998.

Both the chancellor, Nadhim Zahawi, and the prime minister, Boris Johnson, were away from Westminster when the rate rise was announced on Thursday. Mr Zahawi is accompanying his family on holiday, but insisted he is not on holiday himself. — Guardian