Truss to review independence of central bank

LIZ Truss is to review the Bank of England’s independence after it was forced into its biggest interest rate hike in 27 years to quell rampant inflation.

Her allies criticised the central bank for being ‘too slow’ to raise the cost of borrowing as she pledged to review its mandate and ensure ‘it’s fit for purpose’.

The Bank’s doom-laden predictions yesterday reignited the debate over tax and the economy that has dominated the race to become the next prime minister. It predicted inflation will hit 13.3 per cent this year, its highest level in more than four decades, and Britain will fall into a recession lasting over a year.

It hiked the base rate from

1.25 per cent to 1.75 per cent.

Attorney General Suella Braverman said Miss Truss, who she is supporting, will ‘look into detail at exactly what the Bank of England does, and see whether it’s fit for purpose in terms of its entire exclusionary independence over interest rates’.

Miss Truss, addressing Tory party members in Cardiff on Wednesday night, said: ‘ The best way of dealing with inflation is monetary policy.

‘I want to change the Bank of England’s mandate to make sure in the future it matches some of the most effective central banks in the world at controlling inflation.’

Miss Truss has previously said she would implement a ‘more directive’ mandate, suggesting she intended to once again give the Government a role in setting interest rates. The Bank of England was granted independ central ence to set interest rates by Mr Brown as chancellor in 1997, and given a single target to keep inflation at 2 per cent, plus or minus one percentage point.

Miss Truss is said to be considering a similar model to that found in Japan, where the bank is expected to ‘maintain close contact’ with ministers so monetary policy is ‘mutually harmonious’ with Government economic policy.

Japan adopted radically loose monetary policies in an effort to break out of deflation, which has dogged the country since the 1990s. It now enjoys low inflation of 2.5 per cent.

Yesterday Miss Truss’s Tory leadership rival Rishi Sunak began a fresh attack on her programme of tax cuts and higher spending. He launched a new website, called ‘Not In Your Interest’, which claimed interest rates would hit 7 per cent under the plans.

Mr Sunak said: ‘We have to grip inflation, not exacerbate it. Liz Truss’s economic guru Professor Patrick Minford said their plans mean “yes, interest rates have to go up and it’s a good thing”.’

But Miss Truss hit back, saying: ‘The way to tackle the cost of living crisis is by growing the economy. My tax cuts are necessary, affordable and not inflationary.’

An ally added: ‘Rishi has got himself tied in knots on inflation. Modest tax cuts aren’t inflationary. Rishi’s had twoand-a-half years in the Treasury – we’re living the consequences of his “economic plan” now.’

Chancellor Nadhim Zahawi yesterday lauded Britain’s ‘strong, independent monetary policy’, citing it as one of the ‘important steps’ being taken to get inflation under control.

‘See whether it’s fit for purpose’