Watch ITV News political editor Robert Peston’s analysis of what the Bank of England’s latest rate hike means for the government’s fiscal policy The Bank of England’s expectation that the UK economy will contract by mid-2024, with its key interest rate set to rise from 3% today to 4.75% in the coming months, means Rishi Sunak and Jeremy Hunt face the two most stressful weeks of their political lives. They are currently preparing to announce very contractionary tax rises and public spending cuts in the Autumn Statement on November 17, to plug a hole in public finances they estimate at more than £50 billion a year. They are doing this to reassure international investors who – according to the Bank of England – are still charging HM Government more to borrow than before Truss’ reckless mini-budget, even though Hunt reversed most of the tax of cuts. If Hunt and Sunak fail to meet investors’ expectations of a tax and spending squeeze on the economy, the risk is another hike in market interest rates, which will hurt all borrowers, meaning the government and all of us. But the politics of raising taxes and cutting public services when the economy shrinks is terrible. Tory MPs will struggle to explain why their government appears to be reinforcing the recession rather than taking countermeasures. To repeat, the reason Hunt and Sunak feel their hands are tied is because they dare not reinforce the idea – spread by the actions of Truss and Kwarteng – that the UK has become economically incompetent. They are forced to err on the side of raising taxes and cutting government spending more than necessary to limit the risk of stress on financial markets that would make the recession worse than it would otherwise be. It’s a horror show. For the Conservative Party and the United Kingdom. Want a quick and special update on the biggest news? Listen to our latest podcasts to find out what you need to know
