abour has accused Rishi Sunak of ignoring warnings on debt issuance while chancellor during the pandemic, as the Bank of England looks set to raise interest rates further.
The Opposition attacked the Prime Minister’s record in the Treasury, branding it a “short-term, high-risk approach” which left the UK “exposed to inflation going up”.
It claimed UK debt servicing costs have subsequently risen by £56 billion more than other countries, citing an Office for Budget Responsibility (OBR) report showing that the change in Government interest payments between 2019 and 2022 was 2.3% of GDP higher than the G7 average.
Labour has seized on Thursday’s announcement, which most economists think will see interest rates raised for a 14th consecutive time, as it seeks to pitch itself as more “fiscally responsible” than the current Government.
Experts think the Bank will raise the base rate by another 0.25 percentage points to 5.25% – but that an end to the prolonged cycle of increases is in sight.
The last time it stood at 5.25% was in March 2008 but the increase would be smaller than the half-point rise in June.
The latest UK inflation data has taken some of the pressure off the central bank because it showed a bigger-than-expected slowdown in price rises, economists have said.
The Consumer Prices Index (CPI) was 7.9% in June, down from 8.7% in May and the lowest rate since March 2022, according to official figures from the Office for National Statistics (ONS).
It means that rates – which are a tool used by the Bank to bring inflation down to its 2% target – may not need to climb as high as feared.
It comes as both the European Central Bank (ECB) and the US’s Federal Reserve increased their interest rates to two-decade highs last week.
Labour said the Institute for Fiscal Studies (IFS) warned in October 2020 that large sums being borrowed during the pandemic would mean “financing just slightly wrong” would have a high cost.
The party said selling more long gilts – which are bonds issued by the Government – would have protected public money from sudden spikes in interest rates, but that the then-chancellor “ignored” this warning.
But Treasury minister Andrew Griffith said Labour had “awkwardly” failed to understand the IFS advice it was citing, which also made the case for selling inflation-linked gilts.
The 2020 report states: “One way to address this risk (of interest rates rising) is by selling more long-term, index-linked gilts while the effective interest on them is extraordinarily – some would say unsustainably – low.”
That the Prime Minister was given clear warnings but simply chose to ignore them is a true illustration of what little regard he has for the public finances
Shadow chancellor Rachel Reeves said: “Every week families feel the hit of Tory economic failure on their wallets and purses, whether that be through rising food costs, energy bills or spiking mortgage and rental bills.
“That the Prime Minister was given clear warnings but simply chose to ignore them is a true illustration of what little regard he has for the public finances.
“Yet again the Tories have left us paying far more and getting far less.
“We need to restore some economic responsibility and get our economy on a more stable path. If I am chancellor with a Labour government, that is exactly what I will do.”
Responding to Labour’s claims, Mr Griffith said: “During the pandemic we stepped in with an unprecedented £400 billion of support for families and businesses – something we were able to because we’d fixed the public finances after Labour wrecked the economy.
“Awkwardly, Rachel Reeves and Labour have completely misunderstood the expert advice they are quoting. The only thing Labour understand about debt is how to increase it.
“The British people can trust the Conservatives to deliver on our promises, just as we did throughout the pandemic. We will halve inflation, reduce debt, grow the economy, cut waiting lists and stop the boats.”
On Wednesday morning, the Prime Minister urged the public to trust him to get inflation down, acknowledging that rates are not falling as fast as he would like but saying there is a “light at the end of the tunnel”.
He told LBC’s Nick Ferrari: “I know families are struggling with the cost of living and that’s why I set it out as my first priority to halve inflation, and we’re making progress.
“Is that as fast as I’d like? No. Is it as fast as anyone would like? No. But the numbers most recently that we had show that we’re heading in the right direction, inflation is coming down, and I think people can see light at the end of the tunnel.”