RISHI Sunak has seized on the dire economic warnings from the Bank of England to accuse Liz Truss of potentially making the problems even worse.
The Bank today raised interest rates by 0.5 points to 1.75% as it warned inflation was likely to peak at just over 13 per cent.
It also forecast the UK would enter a 15-month recession at the end of this year.
Mr Sunak said: “It is imperative that any future government grips inflation, not exacerbates it.”
Rising energy prices, partly driven by Russia reducing supplies after being sanctioned for invading Ukraine, are to blame.
Ms Truss has promised £30billion of unfunded tax cuts if she wins the Tory leadership race and replaces Boris Johnson as Prime Minister.
Mr Sunak has warned the policy would deepen and prolong inflation, which in turn could force interest rates higher, meaning bigger mortgage bills and loan repayments.
Reacting to the Bank of England’s report, the former Chancellor said: “One of the most urgent challenges we face as a country is getting inflation under control as quickly as possible.
“That Bank has acted today and it is imperative that any future government grips inflation, not exacerbates it.
“Increasing borrowing will put upward pressure on interest rates, which will mean increased payments on people’s mortgages.
“It will also make high inflation and high prices last for longer, making everyone poorer.
“As Prime Minister I would prioritise gripping inflation, growing the economy and then cutting taxes.”
Ms Truss, the foreign secretary and a former chief secretary to the Treasury, has promised to break with “Treasury orthodoxy” if she becomes PM.
She has said she will look at the Bank of England’s mandate to make sure it has a “tight enough focus on the money supply and on inflation”.
She also said that Mr Sunak's policies would lead to recession.
However the Bank's report today suggests recession is coming whoever is in No10, which will mean more Government borrowing.
The two candidate are due to go head-to-head in a Sky News debate tonight.
Shadow chancellor Rachel Reeves said: “This is further proof that the Conservatives have lost control of the economy, with skyrocketing inflation set to continue, while mortgage and borrowing rates continue to rise.
“As families and pensioners worry about how they’re going to pay their bills, the Tory leadership candidates are touring the country announcing unworkable policies that will do nothing to help people get through this crisis.”
Bank of England governor Andrew Bailey told a press conference the mandate set in 1997 was “price stability” and the chancellor then sets the target.
“That’s a somewhat different structure to many other countries,” he said.
“The great virtue of our system is it is very clear what the target is.
“But I also make the point that the structure was set up with a very clear mandate of price stability.”
Chancellor Nadhim Zahawi admitted the Bank's forecasts would be "concerning for many people".
He said: "Addressing the cost of living is a top priority and we have been taking action to support people through these tough times with our £37 n package of help for households, which includes direct payments of £1,200 to the most vulnerable families and a £400 discount on energy bills for everyone.
"We are also taking important steps to get inflation under control through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost our productivity and growth.
"The economy recovered strongly from the pandemic, with the fastest growth in the G7 last year, and I’m confident that the action we are taking means we can also overcome these global challenges.”
Bank of England deputy governor Ben Broadbent set out the historic context of the energy price spike.
He told a press conference: “In the worst two-year period of the ’70s, which I think was between the first quarters of 1974 and 1976, the share of income going on household utility bills, rose by – I think – 0.7 percentage points.
“So it absorbed that much of real income growth over that period.
“Between the first two first quarters of 2021 and 2023, we think that number will be pretty much 3.5 percentage points, so around five times as big. So that is the scale of just the energy price shock.
“And on top of that you have what happened as a result of the pandemic last year and other effects of the war, for example, on wholesale traded food prices.”
He said the Bank will do “whatever is necessary” to ensure the economic shocks “do not persist via more domestic inflationary pressure longer than they should”.
“That will be one big difference between this shock, much larger though it is, and what happened in historical episodes – in particular the ’70s and ’80s.”
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