The former governor of the Bank of England has accused the government of “undercutting” some of the UK’s economic key institutions following its controversial mini-budget.
Chancellor Kwasi Kwarteng announced £45bn of borrowing-funding tax cuts on Friday, including scrapping the highest rate of income tax and reversing plans to increase corporation tax.
He did not discuss spending, however, nor did the government publish the Office for Budget Responsibility’s economic forecasts.
Financial markets plummeted in response, with the pound reaching lows not seen since 1985, and on Wednesday the BoE was forced to step in to buy billions of pounds worth of gilts.
Discussing the fallout, Mark Carney – governor of the BoE between 2013 and 2020 – told the BBC: “There was an undercutting of some of the institutions that underpin the overall approach. So not having an OBR forecast is much commented upon and the government, I think, has accepted the need for that, but that was important.”
He also said the government was working at “cross-purposes” with the central bank by focusing on tax cuts during a period of high inflation.
“Unfortunately having a partial budget in these circumstances – tough global economy, tough financial market position, working at cross purposes with the Bank – has led to quite dramatic moves in financial markets,” he said.
The BoE has hiked rates this year to 2.25%, as it looks to curb surging inflation, currently at a near 40-year high of 9.9%. Analysts expect the cost of borrowing to reach 5% or 6% by next summer.
Kwarteng is due to provide a further update on the government’s fiscal plans, including more detail on borrowing requirements and spending, on 23 November. The government has promised to publish the latest OBR forecasts then. Forecasts are normally published alongside budgets, but despite the scope of the measures announced on Friday, the government insisted it was a “fiscal statement” only.
Meanwhile, prime minister Liz Truss did a brief round of interviews with local radio stations on Thursday, her first since the mini-budget.
However, she opted to focus primarily on government plans, announced in early September, to cap household energy bills, rather than the mini budget or its fallout.
She told BBC Radio Norfolk: “This is the right plan that we’ve set out. This is about making sure that people are going into the winter not worried about ultra-high fuel bills.
“It’s also important that we’re taking steps to improve growth levels in our economy.
“There will always be people who oppose a particular measure and it’s not necessarily easy but we have to do it.”
And she told BBC Radio Kent: “We are facing difficult economic times. I don’t deny this. This is a global problem.”
But speaking to BBC Radio Leeds, she did acknowledge that she needed to take “controversial and difficult decisions and I’m prepared to do that as prime minister”.
