'They're really pulling in opposite directions', says former chief economic advisor over govt row with Bank of England
23 September 2022, 08:45 | Updated: 23 September 2022, 08:51
The government and Bank of England are "pulling in opposite directions", a former chief economic advisor has said amid an ongoing row over how to deal with the recession in the UK.
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It comes as the government is set to announce major tax cuts on Friday morning after the Bank of England decided to hike its interest rates even further.
Speaking on Nick Ferrari at Breakfast, Lord Burns said the divided approach is "concerning".
"It is quite unusual," he said.
"And furthermore it is really quite worrying that two arms of government economic policy which are pulling in opposite directions.
"We have the Bank of England who are putting up interest rates to try to damp down the economy a bit - damp down inflationary pressure - and on the other hand we've got the government who are proposing to have large fiscal expansion and do a great deal more borrowing which will be playing the other way.
"During the time I was in the Treasury in the 1980s and 90s a lot of effort was put in to trying to make sure that fiscal and monetary policy were pulling in the same direction.
"And yet we now find ourselves in a position where they're really pulling in opposite directions and that's quite concerning."
Lord Burns reacts as the Bank of England raises interest rates
Chancellor Kwasi Kwarteng is set to announce the biggest package of tax cuts since Margaret Thatcher on Friday.
The mini-budget will see tens of billions in increased spending and tax reductions.
Mr Kwarteng has already confirmed he will reverse the National Insurance hike, cancel the planned corporation tax rise from 19% to 25% and scrap the limit on bankers' bonuses to allow London to compete with international financial hubs.
Meanwhile, the Bank of England has increased its interest rate by a further half a percentage point.
The latest hike lift the Bank’s key benchmark rate from 1.75% to 2.25%, the highest it has been since December 2008.
It will add £88 a month to the cost of a typical £300,000 London mortgage, lifting the monthly repayment to £1,842, while three million more people approaching the end of their terms now face huge increases in their bills when they have to remortgage.
