Kwasi Kwarteng issued a warning to the governor Bank of Englandas he promises to break the “cycle of stagnation” in Friday’s mini-budget.
The chancellor told Andrew Bailey that claims that near-double-digit inflation was mainly caused by the war in Ukraine were less credible now that the government had taken steps to rein in energy bills, showing the Bank had got inflation under control .
In a letter to Mr Bailey that marked a change in tone from Rishi Sunak, Mr Kwarteng said: “The current high inflation is making it harder for households to pay their energy bills and meet other living costs, while imposing additional costs on businesses and reducing the certainty that they need to grow.
“Inflationary pressures are becoming more domestic”.
He emphasized that the bank’s task is to ensure that inflation, which currently stands at 9.9 percent, returns to the target value of 2 percent.
“I know and expect that the MPC will continue to take the decisive action necessary to achieve this,” he said.
It came as policymakers at the Bank of England warned Britain was already in recession as they raised interest rates by 0.5 percentage points, surprising money markets that had expected a more radical 0.75 points.
In a further sign of tensions between the new government and the bank, a Downing Street spokesman cast doubt on claims a recession was already underway, saying forecasts could “fluctuate and change”.
Mr. Kwarteng”no shame in growing up” stance has led to speculation of big tax cuts in Friday’s mini-budget.
The close ally of Liz Truss has shaken up the Treasury since taking charge this month, including the sacking of her long-serving permanent secretary Sir Tom Scholar.
Economists at the Institute for Fiscal Studies said Friday’s announcements were likely to represent “the biggest fiscal event with tax cuts since Nigel Lawson’s 1988 budget.”
The Chancellor has confirmed that he is canceling the 1.25 percentage point increase national insurance (NI), which was uploaded by Mr. Sunak, to pay social security and resolve NHS arrears.
As well as canceling the NI rise from November, which would save the average worker £330 next year, the chancellor will also announce a red tape blaze aimed at speeding up infrastructure projects and setting up new low-tax investment zones to boost economic growth.
Mr. Kwarteng will announce two “rabbits out of the hat” that have not been reported before. Several policy measures originally planned for the autumn budget were also tabled to be included in Friday’s statement instead.
There was speculation on Thursday evening that VAT and larger tax breaks for business investment could be part of the package.
Mr Kwarteng will say: “Growth is not as high as it should be, which makes it harder to pay for public services, which has forced taxes to rise.
“This cycle of stagnation has resulted in the tax burden forecast to reach its highest level since the late 1940s. We are determined to break this cycle. We need a new approach for a new era focused on growth.
“This will ensure higher wages, greater opportunities and sufficient revenue to fund our public services, now and in the future.”