The final two Tory leadership candidates last night set out competing plans to deal with the recession forecast by the Bank of England.

In their latest TV clash, Rishi Sunak said Liz Truss's "unfunded" tax cuts would pour fuel on the fire of inflation. But Ms Truss said a recession was not inevitable if "bold" action was taken.

The Bank's gloomy forecast of a recession this year loomed large in the TV special

It earlier raised interest rates to the highest level in almost three decades, from 1.25% to 1.75%, in an attempt to push back skyrocketing prices.

The inflation rate is forecast to hit a 42-year high of 13% this year, while the UK economy is expected to shrink for more than a year.

The Bank said the main reason for high inflation and low growth is rising energy bills, driven by Russia's invasion of Ukraine.

The BBC says 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.

Bringing inflation down

Mr Sunak, who has trailed Ms Truss in recent polls, has repeatedly said he would prioritise bringing inflation down before cutting taxes if he became prime minister.

Meanwhile, Ms Truss has pledged a package of tax cuts worth £30billion soon after she enters office, which Mr Sunak has argued would increase inflation and the cost of borrowing.

Mr Sunak said: "We in the Conservative Party need to get real and fast - because the lights on the economy are flashing red and the root cause is inflation."

Ms Truss reiterated her pledge to immediately reverse April's increase in National Insurance and cut other taxes, which she claimed would stimulate economic growth and prevent a recession.

"What the Bank of England have said... is of course extremely worrying, but it is not inevitable," she said.

"We can change the outcome and we can make it more likely that the economy grows."

The pair are vying to win over Conservative Party members, whose votes will determine which of them will become the next Tory leader and prime minister.

Result due next month

The party's 160,000 or so members started receiving ballot papers on Monday, with the result due on September 5, when Prime Minister Boris Johnson will leave office.

Despite trailing in many polls of members, Mr Sunak appeared to win the most support among the TV audience members in a show of hands.

The programme saw an audience made up of Conservative members grill the candidates on a range of issues, including NHS funding, immigration and climate change.

  • Mr Sunak and Ms Truss have been invited to debate the UK's energy future at a special hustings in the north-east. Aberdeen & Grampian Chamber of Commerce has joined forces with the British and Scottish Chambers of Commerce in an attempt to focus the battle between the pair on the energy transition.

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