Tory Leadership Candidates Call Out Bank of England on Inflation Strategy
As Boris Johnson prepares for another party – this time as part of his wedding celebrations – some of those who are looking to take his role as Prime Minister and leader of the Conservatives have been manoeuvring inside Westminster, with the new leader announced on September 5th, 2022.
Taxes and inflation has been two of the major talking points between the candidates and, predictably, one or two more personal digs have been landing here and there.
Foreign Secretary Liz Truss has been quite vocal in her proposed mission to tighten ministerial scrutiny of the Bank of England if she becomes the next Prime Minister. She blasted the bank for failing to get control of spiralling inflation, and has promised to make sure it takes steps to get tougher on the issue.
And Michael Hewson, Chief Market Analyst for CMC Markets commented on the latest headline inflation numbers from the UK, while noting some Conservative leadership candidates had questioned the Bank of England’s record in tackling inflation.
Mr Hewson said: “While these interventions have raised some eyebrows, they are only echoing the concerns that many people in the City of London have had over the last ten years. The reality is that the Bank of England record on inflation over the last 25 years has been patchy at best, too quick to cut rates and too slow to raise them.”
With that, UK CPI is expected to rise to a new record high of 9.3% this week, and possibly even higher. Furthermore, it isn’t likely to come down anytime soon and the Bank of England expects it to peak at 11%.
“Borrowing your way out of inflation isn’t a plan”
Rishi Sunak, favourite to land the leadership role, has reiterated his stance on more than one occasion that the next Prime Minister must tackle inflation before they tackle taxes. But he’s come under fire from Sir Iain Duncan Smith, a key ally of Liz Truss, accusing him of being the one to drive up inflation by printing “huge sums of money” during the COVID-19 pandemic. He questioned why Sunak’s allowed the Bank of England to pump an extra £450 billion into the economy in 2020 and 2021.
In contrast to Sunak’s stance, Ms Truss pledged £30bn of mainly unfunded tax cuts, suggesting that there’s “headroom” of about £30bn in the public forecasts with taxes likely to come in higher than expected. Sunak fired back, in what’s now looking like an internal party feud, by saying: “borrowing your way out of inflation isn’t a plan, it’s a fairy tale”.
Penny Mordaunt, who’s covered several roles in government briefly stated that “my monetary policy will be on controlling inflation”
Mr Hewson said: “While for the most part there isn’t a lot that the MPC can do about most of the high inflation due to the effects of the war in Ukraine, a lot of people were calling for the central bank to start raising rates a year ago, due to evidence of rising prices, and were ignored, as policymakers airily dismissed their concerns as transitory effects, and nothing to worry about. We’re all worried now.”