Why are Government actions opposing those of B.O.E.?

14 October 2022

Question by Stephen

The Bank of England have raised interest rates to curb people spending.
Why then are the Government cutting taxes so people have more money to spend, when the B.O.E don’t want them to spend?

Answered by Boring Money

Hi Stephen

This is an excellent question, and one that Rishi Sunak asked Liz Truss on the leadership campaign. Needless to say, she had no answer and we are now seeing the after-effects of her policy in UK financial markets.

The right way to do this is first to bring inflation firmly under control, and then to worry about growth. The PM believes that tax cutting and growth take priority even though there is no real proven link between cutting taxes and economic growth. Unfortunately the tax cuts and other measures to help with energy costs are completely unfunded which means interest rates have to rise even more because of the extra borrowing needed. This pushes mortgage rates up completely undoing any benefits from the tax cuts. And if benefits and other spending is cut, this will also help depress growth.

It's a complete mess but the U turns are probably coming.

Answered by

Boring Money