Truss says recession 'not inevitable' as Tory leadership hopefuls clash over Bank's dire economic warning

5 August 2022, 00:04

Liz Truss and Rishi Sunak have clashed over the recession warning.
Liz Truss and Rishi Sunak have clashed over the recession warning. Picture: Alamy

By Sophie Barnett

Liz Truss has insisted a recession is "not inevitable" as she clashed with Tory leadership rival Rishi Sunak over the Bank of England's dire economic forecast.

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The pair, who are competing to become leader of the Conservative party and Britain's next prime minister, set out competing plans to deal with the economic recession forecast by the Bank of England during a heated TV debate.

Mr Sunak warned that Ms Truss's plans will make the dire economic situation worse, warning of "misery for millions" by pouring "fuel on the fire".

While Ms Truss insisted a recession was "not inevitable" if we are "bold" and "act now".

The Bank of England issued a dire forecast on Thursday, with experts predicting five consecutive quarters of recession.

Read more: Britain is heading for long recession, Bank of England warns as it imposes biggest interest rate rise in 27 years

Read more: What the Bank of England's interest rate hike could mean for you and your money

The chilling warning came as the bank raised interest rates to the highest level in almost three decades, from 1.25% to 1.75%, in an attempt to curb inflation.

It is the latest hit for Brits already facing spiralling energy and food bills as well as fuel costs taking their toll.

Inflation levels have been pushed up for several reasons, particularly as a result of the fallout from the Covid pandemic as well as Russia's invasion of Ukraine putting pressure on gas supplies.

They are expected to reach 13% by the end of 2022.

The worsening state of the UK economy has dominated the Tory leadership campaign, with both candidates putting forward rival visions to deal with the fallout.

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During Thursday's debate, Mr Sunak said the Conservative party must "get real and fast because the lights on the economy are flashing red and the root cause is inflation".

"I'm worried that Liz Truss's plans will make the situation worse."

He said he has a plan to grow the economy, adding: "But it all starts with not making the situation worse, because if we just put fuel on the fire of this inflation spiral, all of us, all of you, are just going to end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions."

Ms Truss said while the Bank of England's warning was "extremely worrying" she insisted it was "not inevitable".

"We can change the outcome and we can make it more likely that the economy grows," she told Thursday's audience.

She said she she wanted to keep taxes low and "do all we can to grow the economy by taking advantage of our post-Brexit freedom, unleashing investment, changing things like the procurement rules and doing things differently".

"Now is the time to be bold, because if we don't act now, we are headed for very, very difficult times," she added.

The five quarters of recession will mean 15 months of turmoil for Brits, lasting the same amount of time as the 2008 recession.

Rishi Sunak warned that Liz Truss&squot; plans will make the dire economic situation worse, warning of "misery for millions" by pouring "fuel on the fire".
Rishi Sunak warned that Liz Truss' plans will make the dire economic situation worse, warning of "misery for millions" by pouring "fuel on the fire". Picture: Alamy

As a result, GDP is expected to see a decline of 2.1%.

The bank explained: "The United Kingdom is now projected to enter recession from the fourth quarter of this year.

"Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative."

While the economy dominated the latest leadership debate, Ms Truss also faced backlash for her abandoned £8.8 billion policy pledge to cut the public sector wage bill.

A Tory party member told Ms Truss - who refused to apologise for her plans - that the policy had been "quite offensive".

Ms Truss repeated her claim that she had decided to drop the policy because it was being misinterpreted by the media.

She was asked by the member: "Will you apologise? Because it was actually quite offensive."

Liz Truss insisted a recession was "not inevitable".
Liz Truss insisted a recession was "not inevitable". Picture: Alamy

Ms Truss stopped short of apologising, saying: "I have been very clear that I will not go ahead with this policy, and that I have made a decision to do that straight away.

"And I've been upfront about that. I don't think there is anything to be ashamed of, of saying publicly that this is not working as I wanted it to work, and therefore, I have changed the position on it and I'm not going ahead with it."

Meanwhile, Mr Sunak vowed he will not concede despite not being the frontrunner, and pledged to "fight incredibly hard 'til the last day" of the leadership campaign.

The former chancellor told a Conservative party member who asked if there was a point when he would stand aside: "The quick answer is no, and that's because I'm fighting for something I really believe in and I'm taking my ideas around the country."

The next Tory leader should be picked by September 5.

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