Labour has warned Jeremy Hunt that his advisers’ criticism of the Bank of England risks a “damaging” repeat of the economic turmoil seen during Liz Truss’s premiership.
Writing to the chancellor, the shadow chancellor Rachel Reeves has warned that any attacks on the Bank’s approach could “undermine” its role at a critical time.
Mr Hunt has said the Bank has his “full support” in the wake of criticism following the raising of interest rates for the 13th time in a row last month. He said there had been “issues” with its inflation forecasting – which the Bank itself has admitted.
But eyebrows have been raised over comments from members of Mr Hunt’s Economic Advisory Council, who said the Bank had “tried to be too cute” by failing to be clear enough on the need for interest rates hikes.
Ms Reeves warned against any return to the approach taken by Ms Truss and her chancellor Kwasi Kwarteng, who challenged the wisdom of the Bank as they launched into the unfunded tax cuts which sparked economic chaos.
In her letter, shared with The Independent, the Labour frontbencher said: “The same day that families watched interest rates rise for the 13th time in a row it was reported that some of your economic advisers have turned on the Bank of England”.
Ms Reeves added: “As you know, it was the repeated and lengthy undermining of independent economic institutions like the Bank of England that played a role in the crashing of the economy back in September 2022 by the Conservative government. And so it is vital for you to never again repeat this deep and damaging mistake.”
Sushil Wadhwani, a member of the chancellor’s advisory council, said last month the Bank had “tried to be too cute and on frequent occasions when they have raised rates, they have undone the benefits by talking doveishly”.
Prior to the most recent rate hike, fellow Hunt adviser Karen Ward also intervened in the debate – suggesting it was time for the Bank to “create a recession” by pushing rates up.
“The difficulty for the Bank is that they need to create a recession to create uncertainty and frailty, as it’s only when companies feel nervous about the future that they think they won’t put through price rises,” she said. “There’s no other way around it.”
Labour’s Rachel Reeves sent a warning to Jeremy Hunt
Mr Hunt announced in October that he was setting up an Economic Advisory Council to provide “independent, expert advice”. It is not clear how much influence the unpaid, seven-member panel has had over Treasury policymaking.
Ms Reeves asked Mr Hunt whether he agreed with the comments, and challenged him to explain what sort of advice he was accepting from his council. “How is any advice feeding into day-to-day policymaking and government decision-making?” she asked.
A Treasury spokesperson said: “The Economic Advisory Council provides independent, expert advice on economic policy to help grow the economy – their views do not reflect the views of the government. The Bank of England has our full support as it returns inflation to the 2 per cent target.”
Conservative MPs have accused the governor Andrew Bailey and his team of being “asleep at the wheel” in dealing with rising inflation after the Bank was forced to hike the base rate to 5 per cent last month.
No 10 faced questions in the wake of the latest interest rate rise, initially refusing to say whether the prime minister believed that Mr Bailey was doing a “good job”. But Mr Sunak later offered his personal backing, saying the governor had a “track record” of managing inflation “appropriately”.
Kwasi Kwarteng and Liz Truss were at odds with the Bank of England
The Truss administration was widely viewed as being at odds with the Bank – which is strictly independent of government – during her tumultuous six-week stint at No 10.
The Bank had begun raising interest rates and was on the verge of “quantitative tightening” in a bid to slow the economy and tame inflation when Ms Truss and Mr Kwarteng embarked on a “go for growth” plan in September.
Their disastrous mini-Budget, with its borrowing-fuelled tax cut spree, saw the pound plummet, lenders pull mortgage deals and the central bank forced to buy up £65bn of government bonds to prevent the collapse of pension funds.
Mr Kwarteng had openly criticised the Bank of England in August, when he was Tory business secretary, saying “clearly something’s gone wrong” at the institution in its efforts to keep inflation at 2 per cent.
The Truss ally suggested the central bank’s mandate could even be re-examined by a Truss administration at the time that Ms Truss was expected to win the Tory leadership with her promise to take on economic orthodoxy.
After Mr Kwarteng was sacked in the last days of the Truss administration, Mr Bailey suggested the ex-chancellor had been “flying blind” with his disastrous mini-Budget. And former Bank governor Mark Carney accused Ms Truss of “undercutting” the central bank and working at “cross purposes” with it.
