Jacob Rees-Mogg criticised over mini-budget claimson October 12, 2022 at 1:48 pm

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The business secretary is criticised for blaming market turmoil on the UK’s failure to raise interest rates fast enough.

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Claims by Jacob Rees-Mogg that the UK’s financial turmoil is not linked to the government’s mini-budget have been criticised by economists.

The business secretary blamed recent market volatility on the Bank of England’s failure to raise interest rates in line with the US.

But economists said by failing to say how it would fund its huge tax cuts, the government had played a major role.

After the mini-budget the pound plunged and government borrowing costs surged.

Analysts pinned the dramatic reaction on financial markets to concern from investors over how the huge tax cuts pledged by chancellor Kwasi Kwarteng would be paid for.

Mr Rees-Mogg told the BBC’s Today Programme that moves in interest rates, rather than tax cut pledges had sparked the economic turmoil.

“What has caused the effect in pension funds… is not necessarily the mini-budget. It could just as easily be the fact that the day before the Bank of England did not raise interest rates as much as the (US) Federal Reserve did,” he said.

“Jumping to conclusions about causality is not meeting the BBC’s requirement for impartiality” he said after a suggestion the chancellor’s actions had been the trigger for the fluctuations in the value of the pound and government bonds.

A range of respected economists criticised Mr Rees-Moog’s claims, saying the chancellor’s failure to publish an independent assessment of the UK economy would be affected by the plans alongside his mini-budget had spooked investors.

The also said the sacking of the Treasury’s top civil servant Sir Tom Scholar had contributed.

Deutsche Bank’s chief UK economist Sanjay Raja told MPs the mini-budget on 23 September was the “straw that broke the camel’s back”.

Mr Raja argued there is “absolutely a global component” to the chaos but was adamant there is an “idiosyncratic UK-specific component” as well.

He said the “trade shock” because of Brexit is a factor, and added: “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.”

The Resolution Foundation’s Torsten Bell said it was clear the huge package of cuts, which was downgraded to £43bn after Mr Kwarteng’s U-turn on the top rate of income tax, should not have happened in the current financial climate.

“Yes, firing Treasury civil servants isn’t a good idea, that hasn’t helped, side-lining your fiscal watchdog hasn’t helped,” he told the MPs.

He added that after the chancellor announced a plan that “dumped fiscal orthodoxy”, then vowed to bring forward further tax cuts, it was “no surprise to any of us that this is where you end up”.

“This is what happens if you aren’t paying attention,” he said. “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.”

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