RISHI Sunak has said there will be no “magic wand” in Wednesday's budget to end the cost-of-living crisis looming over families this winter.

The Chancellor said inflation, which the Bank of England’s chief economist last week said could soon top 5 per cent, was driven by global factors outside his control.

Mr Sunak said his third budget, the first not to be dominated by short-term responses to the Covid pandemic, would aim to shore up the economy through “strong investment in public services”.

Appearing on BBC One’s Andrew Marr Show, he said: “One of the elements of building a stronger economy is having strong public services - whether it's the NHS, which we've already taken steps to support significantly to recover from coronavirus, children, schools, skills, policing and crime.

"You will see investment across the board in public services because that's what we were elected to deliver and that's what we are getting on and doing."

He said public sector pay, which is effectively being cut by inflation, would be addressed in the three-year spending review published with the budget on Wednesday.

He said the cost-of-living crisis was being largely driven by the global economy rebounding faster than expected after the pandemic, straining supply chains worldwide, and spiking wholesale energy prices.

He said: “Both of those factors are global factors. We’re not alone in experiencing those problems, I don’t have a magic wand that can make either of those things disappear.”

He also admitted the UK’s public finances were especially sensitive to inflation rises, which are expected to lead to bank interest rate rises, because of the nature of its debt. 

He said: “Compared to most other countries - advanced economies - a much larger percentage of our outstanding debt is directly linked to inflation, which means it’s something that I have to keep probably a slightly closer eye on than others”.

Despite recent tax rises, he said his "instincts" remained in favour of cutting tax, but he was having to grapple with "an economic shock - the biggest in three hundred years".

The Treasury trailed £20bn of spending plans over the weekend, including £7bn for transport infrastructure outside of London, though £4.2bn is already allocated.

Shadow chancellor Rachel Reeves urged Mr Sunak to remove VAT from energy bills this winter.   

She said: “People are facing a tough winter now with prices of everything going up, not least gas and electricity bills. When we pay our gas and electricity bills, 5% of that money goes automatically to the taxman. There's something very simple the government could do. 

“It would be immediate and it would be felt automatically on people's bills next month - and that is to cut that rate of VAT from 5% to 0%."

James Smith, research director at the Resolution Foundation thin tank, said the cost of living crisis would a key issue for Mr Sunak’s budget and three-year spending review.

He said: “The big thing that he needs to deal with, and the thing that will really create opportunity, is the focus on the living standards crisis in front of us.

“We have huge cuts in benefits… we have higher inflation and we have rising taxes, and all these… effect incomes, particularly the incomes of those at the bottom end of the distribution. That impact is something the Chancellor must factor into his decision-making this week.”