Conservative MPs Fear For Their Seats If High Interest Rates Linger
Conservative MPs are growing increasingly nervous that interest rates remaining high could be doing serious damage to their prospects at the next general election, which is due to be called before the end of 2024.
Economists expect the Bank of England to raise interest rates by 0.25 basis points on Thursday, which would mark a fifteenth consecutive rise in the Bank Rate. This would lead to interest rates increasing from 5.25 per cent to 5.5 per cent, the highest level since 2008.
Ashley Webb, economist at Capital Economics, told PoliticsHome she believed the “stickiness” of inflation and the strength of wage growth is why the UK’s central bank could increase interest rates.
UK inflation fell from 6.8 per cent in July to 6.7 per cent in August. Meanwhile core inflation – which excludes energy and food prices – dropped from 6.9 to 6.2 per cent in the same period.
The Office for National Statistics (ONS) found UK annual wage growth had risen by 8.5 per cent, the highest in more than 20 years.
Webb said the Bank could keep the Bank Rate at 5.5 per cent until late 2024.
“We think overall CPI inflation may fall from 10.1 per cent at the start of this year to 5.0 per cent in December. That would mean the Chancellor just about meets his target to halve inflation from 10.1 per cent by the end of the year,” she said.
But former cabinet minister David Jones worried that if interest rates didn't come down soon, the Conservatives were likely to feel the impact at the ballot box.
“What we do want to do is to see interest rates coming down a bit. And I very much hope that those who say that interest rates are about to peak are right,” he told PoliticsHome.
“We do need generally to see them come down [interest rates]. I think it's a great shame that the Bank of England allowed them to remain so low for such a long time.
“In terms of actually improving electoral prospects, we do want to see interest rates come down.”
Julian Jessop, an economist and fellow at the Institute for Economic Affairs, a centre right think tank, warned the Bank should be wary of cutting interest rates any time soon.
“The reason we're in this mess in the first place is that interest rates were far too low for too long,” he said.
Jessop said he believed interest rates would not be cut until at least the second quarter of next year.
John Baron, MP for Basildon and Billericay, who sits on the Treasury Select Committee, called for the Bank to pause rate rises.
"The Bank should pause given the time lag before rate changes affect the economy but, because the MPC was so far behind the curve, they have left themselves little flexibility. Lead indicators like the housing market certainly suggest a pause is needed," he told PoliticsHome.
One Conservative MP told PoliticsHome they were concerned Prime Minister Rishi Sunak and his Chancellor Jeremy Hunt were not doing enough to help their constituents as interest rates increased.
“[The Bank of England] have been clear they will raise them to 5.5-6 per cent by end of year, so are just moving as expected,” they told PoliticsHome.
“It's annoying, as [the] PM and Chancellor have no concept of the hardships facing families as the cost of living bites and the NHS falls apart. Rishi is failing and Ministers are obsessed with reshuffles instead of actually helping people.”
A former cabinet minister also told PoliticsHome they believed the Prime Minister's economic plan was not working and claimed “he needs to get a grip”.
Sunak has made halving inflation one of the Government's five priorities for this year. The Chancellor today said the news about inflation showed his plan was "working".
According to YouGov polling in July, more than half of Conservative MPs believe the party will win the next general election. Labour has boasted a double digit lead over the Government for around 12 months.
PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe