Rachel Reeves has declared that the Bank of England’s decision to raise interest rates for a sixth time in succession is “further proof” that the Conservatives have “lost control of the economy”.
The Bank of England announced today that it is raising interest rates by half a percentage point – the largest increase in the cost of borrowing for 27 years. The latest increase takes the UK’s rates to 1.75%.
The Bank also predicted that inflation will rise even higher in the coming months, to around 13%, largely as a result of increases in the price of gas. It projected that the UK will enter recession from the fourth quarter of the year and that real household post-tax income will “fall sharply in 2022 and 2023”.
Commenting on the announcement, the Shadow Chancellor 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.
“Labour would help households right now by removing the tax breaks that are subsidising oil and gas producers and using that money to help people now, including by cutting VAT on energy bills.
“And with our climate investment pledge and plan to buy, make and sell more in Britain, a Labour government will build the strong, secure and fair economy we need.”
TUC head of economics Kate Bell said: “Working people need an approach to inflation that protects jobs and that helps pay keep up with prices.
“But a rate rise does nothing about the current causes of inflation – global energy, commodity and food prices. It will only add to our problems, making a recession very likely and putting lots of people’s jobs at risk.
“Businesses had tremendous support from taxpayers during the pandemic. They should now help to counter inflation with greater profit restraint – especially energy firms.
“And the government must do more to get pay rising, starting with decent pay rises for public servants, a higher minimum wage, and stronger rights for working people and their unions to bargain for fair pay.”
Reacting to the Bank’s inflation projection, chief economist at the Joseph Rowntree Foundation Rebecca McDonald said: “Staggeringly high inflation is going to hit low-income families hard.
“We already know seven million low-income families had to sacrifice food, heating, even showers this year because they couldn’t afford them. Many also took on credit to pay their bills and are falling behind on their payments. This will be much harder to pay off with higher interest rates putting more families in financial peril.
“While the government might have taken a break from acting on the cost-of-living emergency, these families can’t take a holiday from the year of financial fear. They will be wondering why further urgent solutions needed to shore up family finances ahead of the winter are not yet being put in place.
“The next Prime Minister should immediately revisit the government’s cost-of-living support to make sure it’s up to the task. They must also increase basic Universal Credit entitlements to ensure that our social security system always, at a minimum, enables people to afford the essentials when they fall on hard times.
“A simple thing the government can do now is to stop deducting debt repayments from benefits at unaffordable rates, which leaves too little to cover the essentials at the best of times.”
Speaking following the Bank’s announcement, Chancellor Nadhim Zahawi acknowledged that the forecasts will be “concerning for many people” and added that addressing the cost of living is a “top priority” for the government.
He said: “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.”
Tory leadership candidate Rishi Sunak said it is “imperative that any future government grips inflation, not exacerbates it”. The former Chancellor added: “As Prime Minister, I would prioritise gripping inflation, growing the economy and then cutting taxes.”
Fellow Conservative leadership hopeful Liz Truss said: “As Prime Minister, I’d use an emergency budget to kickstart my plan to get our economy growing and offer immediate help to people struggling with their bills.
“Through supply side reforms, dealing with burdensome business regulation and cutting taxes, I will get our economy back on track. My tax cuts are necessary, affordable and not inflationary.”