A strong and properly regulated free-market economy is the only way to guarantee higher living standards, Theresa May will say on Thursday as she contrasts her economic approach with the call for more state control made by Labour at this week’s conference.

In a speech to mark the 20th anniversary of the independence of the Bank of England, the prime minister will insist that there are benefits from an open and innovative economy – provided it is reformed and properly regulated. “A free-market economy, operating under the right rules and regulations, is the greatest agent of collective human progress ever created,” May will say.

“It was the new combination which led societies out of darkness and stagnation and into the light of the modern age. It is unquestionably the best, and indeed the only sustainable, means of increasing the living standards of everyone in a country.”

May has favoured a more interventionist approach since succeeding David Cameron as prime minister in July 2016, announcing support for an industrial strategy and saying that her mission was to create a Britain that worked for those “just about managing” as well as the better off.

But living standards have been falling this year as a result of wages failing to keep pace with the price increases caused by the fall in the value of the pound since the Brexit vote 15 months ago, leaving the government vulnerable to attacks from Labour on its handling of the economy.

In a sideswipe at Corbyn likely to be followed by a more concerted assault at next week’s Conservative party conference in Manchester, the prime minister will attack an ideological approach to running the economy.

“We should never forget that raising the living standards, and protecting the jobs, of ordinary working people is the central aim of all economic policy. Helping each generation to live longer, fuller, more secure lives than the one which went before them. Not serving an abstract doctrine or an ideological concept, but serving the real interests of the British people.”

The prime minister will contrast her belief in open and innovative markets with the more state-dominated approach favoured by Jeremy Corbyn and the shadow chancellor at this week’s Labour party conference.

Corbyn believes the hung parliament that resulted from June’s general election demonstrates that voters have tired of the spending cuts that have formed a central part of economic policy since 2010.

May’s government has slowed the pace of deficit reduction and on current plans it will take until the middle of the next decade for the budget to be balanced. But she is expected to say that it would not be in the best interests of working people to abandon deficit reduction altogether and that a balanced approach is needed.

“That means continuing to deal with our debts, so that our economy can remain strong and we can protect people’s jobs. At the same time, it means investing in our vital public services, like schools and hospitals, which our successful management of the economy has made possible.

“To abandon that balanced approach with unfunded borrowing and significantly higher levels of taxation would damage our economy, threaten jobs, and hurt working people. Ultimately, that would mean less money for the public services we all rely on.”

May began her career at the Bank of England 40 years ago, and her speech will also discuss how the nature of central banking has changed over the past 30 years with its new defining characteristics being “openness and transparency”.