Former Conservative Party leader Liz Truss faced criticism during the recent general election debates for her economic policies, which resulted in a sharp increase in government borrowing and intervention from the Bank of England. The Labour Party sought to capitalize on this by linking current Tories to Truss and her policies, hoping to sway voters with the promise of a better economic plan.
The Labour Party specifically pointed to Truss’s September 2022 mini-budget, which included unfunded tax cuts and spending plans that caused government borrowing to soar. This, in turn, led to the Bank of England stepping in to prevent a collapse of pension funds. Labour argued that it was Truss’s policies that caused interest rates to rise, making borrowing more expensive for homeowners.
However, it is not entirely accurate to attribute all of the blame to Truss. While her policies certainly played a role in the increase in interest rates, there were other factors at play. For example, the Bank of England’s primary responsibility is to control inflation, which was at a high of 10.1% during the time of the mini-budget. This led to the Bank’s decision to raise interest rates by 0.75 percentage points, the largest increase in nearly 30 years.
Labour also pointed to statistics from the Office for National Statistics (ONS) showing that monthly mortgage payments had increased by an average of £221 since Truss’s policy announcement. However, these figures do not take into account the impact of the pandemic and the subsequent increase in house-buying, as well as the effect on mortgage rates.
Furthermore, during the two months following the policy announcement, there were only 104,100 new mortgage sign-ups, a decrease from the usual monthly average of 66,700. This can be attributed to the instability in the market caused by Truss’s policies, which made lenders wary of offering mortgages at lower rates.
It is also important to note that mortgage rates were already on the rise due to increasing inflation and the expectation of the Bank of England’s intervention. This was reflected in the average two-year fixed deal rate of 4.74% and the five-year fixed deal rate of 4.75% on the day of the mini-budget.
While Truss may not be solely responsible for the rise in interest rates, her policies certainly played a significant role. The Bank of England’s governor, Andrew Bailey, indirectly mentioned the impact of “Trussonomics” when discussing the UK’s unique borrowing costs compared to other countries.
Inflation has been a global issue, and higher interest rates cannot be solely pinned on Truss. However, during her short time as Prime Minister, the expectations for the Bank’s interest rate for the coming year rose from less than 4% to around 6%. This can be attributed to the fallout from Truss’s economic policies, which caused a rapid rise in interest rates for two and five-year fixed deals.
Truss has declined to apologize for the higher interest rates, but has acknowledged that her government lost the confidence of financial markets. While she may not be solely responsible for the current economic situation, her policies certainly had a significant impact and cannot be discounted.
