Conservative MPs Believe Bank Of England Could Cost Them Next Election
The Bank of England has been criticised by Tory MPs for raising interest rates too slowly
5 min read
Conservative MPs are concerned the Bank of England's slow decision to raise interest rates to five per cent could cost their party next election.
On Thursday the Bank's chief Andrew Bailey announced a 0.5 percent jump on interest rates – the highest level since April 2008 – in an attempt to tackle inflation.
The Bank of England (BoE) hopes tightening monetary policy – how much it costs to borrow – will blunt inflation and lessen price rises. UK inflation remained at 8.7 per cent in May while core inflation – the change in the price of goods and services – rose by 0.3 per cent from 6.8 per cent to 7.1. Many Conservative MPs believe if the Bank had hiked rates sooner it could have already stemmed inflation, which would have increased the value of the pound, relieving the pressure on consumers faced with higher loan and mortgage costs.
A government source accused the BoE of "incompetence" and said there is growing concern in Whitehall that the impact of interest rates on mortgages is going to cost the Tories at the polls. The party is facing four by-elections in the coming months after a number of MPs, including Boris Johnson, stood down in protest at partygate sanctions against the former prime minister.
A former cabinet minister told PoliticsHome they were "disappointed" in the BoE and believe their approach is wrong. They said the Bank should be focused on getting "interest rates down" to address inflation and prevent spiralling mortgage payments.
Another frustrated Tory MP agreed if the Bank had acted sooner, the economic climate would "have been much better", and placed the blame with Bailey rather than Downing Street. "It’s right the BoE should get some attention today. No great unrest on the backbenches as far as I can see," they said.
Torsten Bell, Managing Director of the Resolution Foundation, recently explained how recent interest rate hikes could trigger financial difficulty for mortgage holders. This is likely to take hold during the run-up to a 2024 election. According to Bell, the "current market pricing" suggests remortgaging next year could set back homeowners around £3,000 a year.
Nick Fletcher, MP for Don Valley who was elected in 2019, was also critical of rising interest rates.
"I do believe that they're deeply damaging. And I think we need to stop putting these interest rates up on a month to month basis, we need to give it six months and that raise interest rates take effect, and then move forward from that," he told PoliticsHome.
But he was wary of government intervention to tackle the issue, believing if the Government provides financial support for mortgage holders then "we will speed it back up and inflation [will] take over again, so it's an extremely difficult time".
A former minister concurred that "priming the economy with more cash is what has led to this situation" and will stoke inflation higher.
"That’s leaving aside the moral problem with helping people who have their own assets rather than those who don’t," they added.
Christopher Chope, MP for Christchurch, told PoliticsHome he felt the Bank of England had "completely let down the British public down".
“The blame lies with the governor because the governor is supposed to deliver 2 per cent inflation and he’s missed, and it started off with quantitative easing which went on for far too long," he explained. "What credibility has he got?”
But former cabinet minister Damian Green said Conservative MPs should refrain from attacking institutions such as the Bank of England as doing so could spook the "markets" and cause chaos last seen when former prime minister Liz Truss launched a raft of controversial tax measures and tanked the pound.
"I think we should draw the lessons from the Liz Truss government, which is that if the government starts attacking independent institutions, then the markets take fright," he told PoliticsHome.
"That will be absolutely the last thing we want at this stage. So I can understand why no minister would want to criticise the Bank of England at this stage. Confidence is a very important part of getting rid of this current problem."
Rishi Sunak said that he is “determined” to bring down inflation but admitted that it could be difficult. "I've never said this is going to be easy getting inflation down, I have always said this is going to be tough and it's going to take time,” he told a press conference in Kent just hours after the Bank's interest rates announcement.
“But I’m determined to do it and it’s right that we do it, because in the long run that is the best way to help everyone because inflation eats away in the money in your pocket and that's wrong"
Earlier today, Hunt insisted on maintaining “watertight” resolve in an effort to tackle rampant inflation, warning that things would be “worse later” if the Bank did not “act now”.
"High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down," he said.
“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.
Inflation in the UK is running at more than four times the Bank’s annual target of 2 per cent.
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