Rishi Sunak has warned that he cannot spend more public money as he expects interest rates to rise to 2.5% over the next year.
The chancellor told colleagues earlier this week that the financial markets had already priced in a succession of interest rate rises, and added that further government borrowing risked sending inflation still higher.
He pointed out that a 2.5% rise would increase the cost of mortgages by more than £1,000 a year.
The chancellor has rejected calls from Labour and Tory MPs to bring forward plans to confront the crisis over the cost of living. He is planning a major intervention in his autumn Budget, before the energy price cap rises.
Sunak argued that it would be “silly” to intervene now.
