Liz Truss threatens to interfere with Bank of England mandate after policy disagreement

Tory leadership frontrunner has taken issue with Bank policy on interest rates

UK foreign secretary Liz Truss speaks during a Conservative party membership hustings at the All Nations Centre on 3 August 2022 in Cardiff, Wales (Getty Images)

Liz Truss is to review the Bank of England's mandate after supporters of her leadership campaign said it had been "too slow" to raise interest rates.

The Tory leadership frontrunner believes the bank, which has been independent of government since the 1990s, should have raised interest rates "a long time ago".

But policy is currently set by an independent committee of economists, meaning the government currently has no direct say in whether they go up or down.

The Bank is expected to raise interest rates on Thursday amid a backdrop of surging prices. Inflation hit 9.4 per cent in June, a 40-year high driven by rising energy and food prices.

But speaking ahead of the announcement an ally of Ms Truss insisted on Thursday morning that the central bank would remain independent despite the would-be prime minister’s planned meddling.

Suella Braverman, the attorney general, who is backing Ms Truss's campaign to replace Boris Johnson, said the new prime minister was not sure the institution was "fit for purpose".

"Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” Ms Braverman said.

"Liz Truss has made clear that she wants to review the mandate that the Bank of England has, so that's going to be looking in detail at exactly what the Bank of England does and see whether it's actually fit for purpose in terms of its entire exclusionary independence over interest rates."

The Bank was granted operational independence over monetary policy in 1997 by former chancellor Gordon Brown. It has a mandate set by the government to keep inflation at 2 per cent. A committee of economists, known as the monetary policy committee, sets interest rates with this target in mind.

Speaking at a hustings on Wednesday in Cardiff Ms Truss herself told her audience of Tory members: “The best way of dealing with inflation is monetary policy and what I have said is I want to change the Bank of England’s mandate to make sure in the future it matches some of the most effective central banks in the world at controlling inflation.

“The last time the mandate was looked at was in 1997 under Gordon Brown. Things are very, very different now.”

Speaking on Sky News Ms Braverman also rejected criticism that Ms Truss's plans to cut taxes would drive up inflation further.

"People say 'we can't afford to cut taxes', Liz thinks - and I agree with her - that we can't afford not to cut taxes," she said.