Analysts believe the Bank of England may have to hike interest rates more aggressively after Monday morning’s market turmoil.
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The Bank of England on Monday said it was monitoring financial market developments “very closely” after a dramatic morning of market turmoil sent the British pound to an all-time low against the US dollar.
Sterling fell as much as 4.8% to trade below $1.04 in the early hours of Monday morning, extending losses from late last week when Finance Minister Kwasi Kwarteng announced the new UK government’s so-called ‘mini-budget’ sketched.
The British currency has since recouped some of its losses, trading 1.5% lower at $1.0695 as analysts predict the Bank of England may have to hike interest rates more aggressively.
“The Bank is closely monitoring developments in financial markets given the significant repricing of financial assets,” Bank of England Governor Andrew Bailey said in a statement.
“The role of monetary policy is to ensure that demand does not exceed supply in a way that leads to more inflation over the medium term,” Bailey said.
The BOE governor said the central bank’s monetary policy committee would make a “full assessment” and “act accordingly” at its next scheduled meeting in November.
“The MPC will not hesitate to change interest rates as needed to bring inflation back to the 2% target on a sustainable basis in the medium term, in line with its mandate,” he added.
Prime Minister Liz Truss’s government announcement included a series of tax cuts not seen in Britain since 1972 and a brazen return to the ‘trickle-down’ economics advocated by the likes of Ronald Reagan and Margaret Thatcher.
The radical policy moves put the UK at odds with most of the world’s major economies at a time of sky-high inflation and a deepening cost-of-living crisis.
The UK Treasury said on Monday afternoon that the government would present its medium-term fiscal plan on November 23.
Kwarteng called on the independent Office for Budget Responsibility to produce a full forecast alongside the plan, the Treasury Department said.
Of course, Friday’s mini-budget was not accompanied by the OBR’s usual economic forecasts.
“The financial plan will provide further details on the government’s fiscal rules, including ensuring that debt as a percentage of GDP falls over the medium term,” the Treasury Department said in a statement.
The government also intends to table supply-side growth reforms starting next month, she added.
This is breaking news. Please check again for updates.
— CNBC’s Elliot Smith contributed to this report.
