Mr Sunak struck back by saying her vision “will make the situation worse”, on the day the Bank of England warned inflation could peak at 13.3 per cent in October.
Interest rates were raised to the highest level in nearly three decades, from 1.25 per cent to 1.75 per cent, worsening the pain for mortgage holders.
The central bank predicted the economy will plunge into the longest recession since the financial crisis in 2008.
“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," Mr Sunak told the Sky News debate.
“I’m worried that Liz Truss’s plans will make the situation worse.”
He stressed a need to get a grip on runaway inflation before cutting taxes.
“But it all starts with not making the situation worse," Mr Sunak said.
“Because if we just put fuel on the fire of this inflation spiral, all of us, all of you, are just going to end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions.”
Mr Sunak said there was “of course” measures that could be taken to battle a recession.
“It’s not the tax burden that is causing the recession. That’s simply wrong. What’s causing the recession is inflation,” he said.
“So what I’m not going to do is embark on a borrowing spree worth tens of billions of pounds, put that on the country’s credit card, ask our kids and our grandkids to pick up the tab, because that’s not right. That’s not responsible.”
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The financial focus of the battle to succeed Boris Johnson as prime minister intensified with the Bank’s warnings, as the contenders try to win the Tory members who will select the winner.
Ms Truss repeated her pledge to immediately reverse the national insurance increase, introduced by Mr Sunak when he was chancellor of the exchequer, and cut other taxes to prevent job losses from a recession.
“What the Bank of England have said today 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.
“Now is the time to be bold because if we don’t act now, we are headed for very, very difficult times.”
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Mr Sunak is fighting to make up ground on Ms Truss, after polls put her about 32 percentage points ahead among Tory members.
Asked if would concede the fight at any point, Mr Sunak said: “The quick answer is no, and that’s because I’m fighting for something I really believe in and I’m taking my ideas around the country.
“I’m going to fight incredibly hard ’til the last day of this campaign for each and every one of your votes.
“The stakes are really high.”
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Mr Sunak received the overwhelming support in a show of hands by members in the audience at Sky’s West London studios.
The audience was divided over Mr Johnson’s legacy, with Ms Truss’s defence of his conduct receiving a mixed response and Mr Sunak being accused of having “knifed Boris for your own interests”.
Ms Truss refused to say whether she would strip the Tory whip from the departing prime minister if a Commons inquiry found he deliberately lied to MPs about partygate.
She said she was “not making any prejudgments” about the investigation.
“But by the way, I’m very clear he didn’t mislead Parliament,” Ms Truss said.