Labour’s shadow chancellor will warn of “profound implications” for growth, with firms facing “desperately difficult decisions” over their future, if interest rates rise again as expected.
With the Bank of England set to unveil the biggest single interest rate hike since the 1980s in a bid to control the runaway inflation battering British households, Rachel Reeves will also caution that families with “already stretched budgets” are in line for even higher mortgage payments.
She will claim the UK is uniquely exposed to economic shocks due to a failure to get an handle on years of “weak growth, low productivity and underinvestment and widening inequality”, with a need for a “new spirit of partnership” between Government and business.
Ms Reeves will also suggest the country is “falling behind” in the race for the “industries of the future”, pledging a “fairer, greener, more dynamic Britain” under Labour.
In a crunch meeting on Thursday, the nine members of the Bank’s Monetary Policy Committee are expected to opt to push up the base interest rate from 2.25% currently to 3%, the highest since 2008.
If, as expected, the Bank raises interest rates by 0.75 percentage points, it would be the biggest single hike since 1989.
Speaking at the Anthropy conference in Cornwall roughly three hours after the Bank is set to announce its decision, Ms Reeves will warn of tough consequences for both families and businesses.
“Britain’s unique exposure to economic shocks has been down to a failure to get to grips with more than a decade of weak growth, low productivity and underinvestment and widening inequality,” she will say.
“Rising interest rates will mean families with already stretched budgets will be hit by higher mortgage payments. It will mean higher financing costs for businesses.
“For many firms who have had a tough couple of years this will mean desperately difficult decisions about whether to carry on.
“And it will mean profound implications for growth as demand is sucked out of the economy and even those firms who are keeping their head above water face difficult decisions about whether to invest or expand.”
Ms Reeves will say the past two months, during which there have been two new Tory leaders, have “underlined the importance of strong institutions and robust fiscal rules”.
“So be in no doubt: Labour will not interfere with the Bank of England’s operational independence,” she will say.
“Labour will respect the role played by the OBR and by our independent civil service.
“And Labour will ensure every policy we announce, and every line in our next manifesto, is fully costed and fully funded.”
The shadow chancellor will also tout Labour’s Green Prosperity Plan, saying: “There is a global race on for the industries of the future and we are falling behind.
“We have the talent. We have the capacity. But we want the jobs here. We want the factories here. And we want British businesses to take the lead.
“So the next Labour government will invest with business to meet our climate commitments to achieve energy independence and so that businesses and working people in every part of Britain can enjoy the opportunities presented by our climate transition.”