Inside Politics: The ghost of Liz Truss

Bank of England raises interest rates and warns of deep, prolonged recession as Sunak and Hunt draw up plans to plug £50bn black hole in public finances, writes Matt Mathers

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Hello there, I’m Matt Mathers and welcome to The Independent’s Inside Politics newsletter.

Just two days until Matt Hancock enters the jungle. If the image of the former health secretary eating kangaroo genitalia isn’t a nice thought to end the week on then you’re a lost cause. Have a good weekend.

Inside the bubble

The Commons is not sitting.

Former Bank of England governor Mark Carney on Radio 4 at 8.10am

Policing minister Chris Philp on ITV GMB at 8.25am

Daily briefing

Ouch

Halloween might have already passed but the Bank of England served up a horror show yesterday nonetheless, announcing that, not only is the base rate of interest going up to 3 per cent – the biggest hike since 1989 – but also that the UK is facing its deepest recession since reliable records began.

The Resolution Foundation think tank has since warned that “everyone will be affected”, including some mortgage holders who, according to Martin Lewis, the Money Saving Expert, will see their yearly costs increase by hundreds of pounds.

Andrew Bailey, the Bank’s governor, essentially said that officials had no other choice but to raise the base rate as they seek to tackle soaring inflation, which is running 10.1 per cent – five times the central bank’s 2 per cent target.

Justifying the move, at a time when households and businesses are already under huge financial pressure, Bailey said that if double-digit inflation becomes embedded in the economy, then the affect of this would be worse than low growth. It wasn’t all bad news, though. The bank said it expects rates to peak at 4.5 percent — lower than the previous 5.25 percent that investors had once priced in. Inflation is expected to hit 11 percent before falling sharply in the middle of next year. Happy Friday.

Responding to the announcement Keir Starmer Starmer, the Labour leader, said that homeowners are now paying a “Tory premium” on their mortgages. Is he right or just playing politics? When asked last night by Channel 4 News about the meltdown in the markets in September, Bailey certainly rubbished the idea that it was solely down external, global factors as Liz Truss, the former prime minister and Kwasi Kwarteng, the ex chancellor, tried to claim.

Readers can take a look at chart 2.9 in the Bank’s latest monetary policy report detailing the surge in UK government bonds – compared to the rest of the world – and decide for themselves. Those blue bars in the graph might look abstract but they will be paid for with public spending cuts or higher taxes, probably both. It looks like the ghost of Liz Truss is going to haunt us for years to come.

New PM Rishi Sunak and chancellor Jeremy Hunt, who have been sent in to mop up the mess, are still working away on the autumn statement, which will be published on 17 November. Reports this morning say the chancellor is planning a raid on capital gains tax as he seeks to fill a reported £50bn black hole in the public finances.

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No election in NI

There is some slightly good news this morning for Northern Ireland, which will avoid an election that nobody wanted. Chris Heaton-Harris, the Northern Ireland secretary, has this morning confirmed that he would not call for a poll in December.

In a written statement he said: “At midnight on 28 October, I came under a duty to call an Assembly election.“Since then, my engagement with the political parties has continued. I have had valuable conversations with people across Northern Ireland, including business and community representatives. I have listened to their sincere concerns about the impact and cost of an election at this time.”

He added: “I can now confirm that no Assembly election will take place in December, or ahead of the festive season. Current legislation requires me to name a date for an election to take place within 12 weeks of 28 October and next week, I will make a statement in Parliament to lay out my next steps.”

The bad news for the people of Northern Ireland is that they still have no devolved government because of an ongoing row over Brexit’s Northern Ireland protocol.

Today’s cartoon

See all of The Independent’s daily cartoons here

(Dave Brown)

On the record

Andrew Bailey, the Bank of England governor, when asked by Channel 4 News if the market meltdown in September was caused solely by global factors

“I don’t really think that is the case. Certainly, global markets have had shocks this year, we’ve had common shocks, Ukraine would be an example, but this was a particularly UK issue.”

From the Twitterati

Harry Cole, Sun politics editor, on Sunak’s committee changes.

“KREMLINOLOGY...Sunak scraps Truss’s short lived Foreign Policy and Security Council and restored trad NSC..But added a new special NSC on Europe - that kicks off Braverman?! Hunt now chairs Home Affairs Committee (it covers economic policy too)”.

Essential reading

• Andrew Woodcock, The Independent: When it comes to ‘small boats’, the Tories need to own the narrative
• Chris Stevenson, The Independent: Trust in politicians has fallen sharply – can it be won back?
• James Forsyth, The Times: Education could be Rishi Sunak’s big revolution
• Roya Hakakian, The Atlantic: Ukrainians and Iranians Have the Same Enemy. They Should Have the Same Ally.

Inside Politics first appeared in our daily morning email. You can sign up via this link.