Bank of England's Prediction Of 13% Chokes PM Race

If Bank of England Governor Andrew Bailey were right, the two candidates vying to replace Boris Johnson as Britain’s next prime minister might wish they hadn’t thrown their hats in the ring, Ed Cropley wrote for his Reuters Breakingviews column late on August 5, 2022.

Photo Insert: Alongside a 50 basis point hike in interest rates, the central bank cast a doubly dark cloud over the contest on Thursday as it predicted inflation will top 13% in October and the economy will slip into recession.

Alongside a 50 basis point hike in interest rates, the central bank cast a doubly dark cloud over the contest on Thursday as it predicted inflation will top 13% in October and the economy will slip into recession.

The double whammy would land shortly after the victorious candidate moves into Downing Street in September. To make matters worse, neither Liz Truss nor Rishi Sunak has so far laid out a coherent plan for tackling the resulting decline in real incomes.

Sunak, the former finance minister, appears reluctant to use fiscal policy to lighten the burden on households. Foreign Secretary Truss’s stated preference for lower taxes points to a sharp increase in government borrowing.

Investors, who reacted to the grim GDP projections by dumping the pound, are taking Bailey’s forecast seriously. The contest to be prime minister is looking increasingly like a poisoned chalice.

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