Bank of England monitoring markets ‘very closely’ after pound falls

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.

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“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.

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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.

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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.

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