Senior economists have rejected Jacob Rees-Mogg’s claim that economic chaos facing the UK was not caused by Kwasi Kwarteng’s disastrous mini-budget.
The business secretary this morning tried to blame the Bank of England for failing to increase UK interest rates in line with the US rather than the chancellor’s September 23 statement.
Appearing on ITV’s Good Morning Britain programme, Rees-Mogg said “nothing is entirely unconnected” but suggested that the mini-budget was not the main reason for the market turmoil.
“I would point to the day before, when the Monetary Policy Committee did not put up interest rates as much as the Federal Reserve had. And that was the more profound effect on markets.”
But his claims were rubbished by a string of economists as they gave evidence to the Treasury select committee.
Resolution Foundation chief executive Torsten Bell said: “If you spend the summer telling people you are intending to abandon fiscal orthodoxy, if you then announce a package that dumps fiscal orthodoxy, then if you say on Sunday you are going to keep doing it, then I don’t think any of this should be a surprise to any of us that this is where you end up and this is what happens if you aren’t paying attention.
“Maybe you could have got away with that in more benign times — it wouldn’t have been a good idea in any times — but you definitely shouldn’t be doing it in the current climate.
“It was always going to be hard, but it was exactly because it was always going to be hard that you don’t do this.”
Deutsche Bank’s chief UK economist Sanjay Raja said the mini-budget was the “straw that broke the camel’s back” following Brexit and the decision not to let the Office for Budget Responsibility assess the government’s plans.
He said: “You throw on the September 23 event, you’ve got a sidelined financial watchdog, you’ve got lack of a medium-term fiscal plan, one of the largest unfunded tax cuts we’ve seen since the early 1970s, it was kind of the straw that broke the camel’s back.”
In the wake of the mini-budget, the value of the pound plummeted, mortgage rates soared and the Bank of England was forced to step in to bail out the pensions industry.
That forced the chancellor to ditch the headline policy of abolishing the 45p rate of tax for the country’s top earners and bring forward his plan to balance the books from November 23 to Halloween.
However, the value of the pound plunged again last night after Bank of England governor Andrew Bailey insisted that his emergency intervention to support pension funds would end this week.
To add to the government’s woes, fears of an impending recession were heightened after new figures from the Office for National Statistics figures (ONS) revealed that Britain’s economy unexpectedly shrank in August as factories and consumer services firms struggled.
GDP dropped by 0.3 per cent between July and August, having grown by 0.1 per cent the previous year.