Bank must keep power to set interest rates, says Truss

LIZ TRUSS has confirmed that she would allow the Bank of England to continue to have the power to control inflation by setting interest rates.

The Foreign Secretary, who is expected to win the Tory leadership contest today, said that she was a “great believer” in the Bank’s independence and it would be “completely wrong” for her to dictate the path of interest rates.

While Ms Truss has previously expressed her support for the Old Lady of Threadneedle Street to remain independent of government, she has also said that she would look at the systems of other countries to ensure that it was the correct mandate to ensure it has a “tight enough focus on the money supply and on inflation”.

Speaking on BBC One’s Sunday with Laura Kuenssberg, Ms Truss said: “I’m a great believer in the independence of the Bank of England. We need to allow the Bank of England to do that job.

“I think it was about three decades ago we stopped politicians making decisions about interest rates. So, I’m not going to start saying what interest rates the Bank of England should be.”

She added: “I think it would be completely wrong for me as a politician to say what I wanted interest rates to be and to countermand the Bank of England.” Her comments come after Andrew Bailey, the Governor of the Bank of England, said that independence over the direction of monetary policy was “one of the great virtues of our system”.

He warned Ms Truss not to challenge the Bank of England’s rule-making powers and change its mandate, as tensions between Threadneedle Street and ministers grew. In a letter to the Treasury select committee, he said curbing the institution’s independence could damage its international reputation.

The Bank of England has forecast inflation of 13pc, rising interest rates and a recession.

Mr Bailey was not the only one to fire warning shots over the idea.

Former interest rate setter Michael Saunders, who stood down from the Monetary Policy Committee last month, warned as he departed that taking away the bank’s independence would damage the economy. “Government borrowing costs would rise, companies would be more uncertain [and] future investments would suffer,” he said.

Ms Truss has made clear in recent weeks she has the Bank firmly in her sights. “Something has gone wrong,” Kwasi Kwarteng said last month following the Bank’s performance over controlling inflation. He is expected to be Ms Truss’s choice as chancellor.