'Liz Truss has an easier job than the Bank of England'

'Liz Truss has an easier job than the Bank of England'

The task facing the Bank of England in controlling inflation is harder than that facing the new prime minister, an expert has said.

Liz Truss took up the post of prime minister this week, entering office with a long to-do list.

Inflation is soaring, driven by energy prices which are set to rise to alarming levels over the next year, the ongoing war in Ukraine, and the recession facing the UK.

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Yesterday (September 8), Truss announced a cap on the price of energy, saying that the average household would pay no more than £2,500 annually for energy.

However, the chief economist at the Bank of England said earlier this week, before the cap announcement, that any freeze of energy prices could result in a hike in interest rates.

“We do have work to do,” Huw Pill told the Treasury Committee.

There are concerns that a limit on energy prices will cause inflation to continue to rise, as demand for both energy and other items measured in the consumer prices index will not be curtailed as much as previously thought.

“I think Liz Truss has an easier job than the Bank of England,” said investment manager at Quilter Cheviot, David Henry.

A handle needs to be gained on inflation, Henry added, and borrowing costs need to be kept low, as the energy package will most likely be paid for by borrowing.

“Those two aims do not sit particularly well or easily with each other,” he said.

The bank is “obsessed” with keeping a relative floor under the property market in this country, Henry added, they are aware of how leveraged and exposed the average UK resident is to the property market.

“That keeps a lid on interest rates,” he said.

If inflation is kept below ten per cent as a result of the energy price cap, the likelihood of a recession is more shallow, said head of UK equities at Schroders, Sue Noffke.

“The Bank of England is caught and beholden to inflation,” Noffke said.

Sterling has already been very weak, she added.

“Can the package of measures put a floor under sterling, or does it lead to further sterling slide,” Noffke said.

“That’s important for inflation because we import so many goods, and we can’t get away from weaker sterling.”

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