Liz Truss stiffened the Bank of England’s resolve on inflation

It turns out there is nothing like getting your homework marked by a tough new teacher to make everyone concentrate a little harder. Over the last couple of weeks of her campaign to lead the Conservative party, Liz Truss has made one point again and again. The Bank of England has been far too relaxed about inflation. And, surprise surprise, it has suddenly got a lot tougher.

Today the Bank raised interest rates by half a percentage point, the largest single move in almost thirty years. Rates are now at the highest level in almost two decades. There was no great mystery about why. Inflation is already running at 9 per cent and, shockingly, the Bank predicted today that it would hit 13 per cent before it peaked. Optimistic forecasts that rising prices were merely temporary, triggered by the war in Ukraine, and would soon be back under control, have been blown away. It is now clear that, along with much of the rest of the developed world, the UK has a serious inflationary problem.

Arguably the Bank should have been more decisive. A one percentage point rate rise today would have sent the clearest possible message that it was determined to bring inflation back under control even at the risk of tipping the economy into a recession.

Even so, a half point, accompanied by the winding up of quantitive easing, is still the clearest signal it has yet since. It is hard to avoid the conclusion that Truss's criticisms have had an impact. We already know that she will almost certainly become Prime Minister in a few weeks time and will be appointing a new Chancellor to oversee the Bank. She has already said she will be reviewing its mandate, and asking questions about whether it has been tough enough. True, it might have raised rates by a half point anyway. But with the PM-in-waiting breathing down its neck it was inevitable. And it may well hike rates again in August.

If she becomes PM, Truss will at least have her criticisms of the Bank on the record. That will help her deflect the issue, at least for a while. And yet no Prime Minister can expect to survive 10 per cent inflation for long, and definitely not a general election. Truss has already stiffened the Bank's resolve. But she may have to force it to act more decisively still if her premiership is not to end in an inflationary mess.