Sunak Says Tory Election Win Will Bring UK Interest Rate Cuts
(Bloomberg) -- Rishi Sunak has claimed that a vote for his governing Conservative Party at the UK general election is a vote for interest rate cuts, drawing the Bank of England into a campaign it has been trying to avoid.
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“Of course it is,” the prime minister said in an interview with the Times newspaper on Thursday. “We are the party who has committed to bringing down inflation, which is a necessary condition for bringing down interest rates.”
Sunak’s words are a message aimed at homeowners and the Tory base, which will be seen as highly political since interest rates are out of his control and fall under the remit of the independent Bank of England. The government handed the BOE authority to set rates in 1997 and has avoided interfering in decisions by the nine-member Monetary Policy Committee since.
The premier has previously been accused of trying to take credit for inflation falling in recent months, while blaming its rise over the last two years on global factors.
Investors have rapidly pared back bets for how many rate cuts the Bank of England will deliver this year after stronger than expected inflation readings both in the US and UK. Markets that at the start of the year anticipated five or more reductions this year now are almost fully pricing in only one quarter move coming in November and another by June 2025.
Expectations for rate cuts this year were fading even before Sunak called the election for July 4, and economists say the campaign along with strong inflation make it almost impossible for the BOE to act at its next meeting on June 20.
Keir Starmer’s opposition Labour Party is expected to take power at the election and is currently leading opinion polls by around 20 points.
On Wednesday, Labour accused the Tories of risking interest rates going up by making a series of spending commitments the opposition said were unfunded.
Labour’s Shadow Chancellor of the Exchequer Rachel Reeves also categorically ruled out increasing the value-added tax, a sales levy, after her Tory counterpart Jeremy Hunt claimed she was considering putting it up.
That means Reeves has strongly ruled out rises to income tax, the national insurance payroll tax and VAT. The next government is likely to be fiscally restrained as it contends with an already-high tax burden while trying to find money to spend on Britain’s ailing public services.
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