Analysts say the Bank of England may need to raise interest rates more aggressively following market turmoil on Monday morning.
Pictures of Sopa | Lightrocket | beautiful pictures
The Bank of England on Monday said it was monitoring financial market developments “very closely” after Dramatic morning of market turmoil see GBP fall one all-time low against US dollar.
The pound fell as much as 4.8% to trade below $1.04 in the early hours of Monday morning, extending losses from last weekend when Finance Minister Kwasi Kwarteng outlined the so-called “small budget. “
The UK’s currency has since offset some of its losses, trading 1.5% lower at $1.0695, as analysts predict the Bank of England may need to stronger interest rates.
The Bank of England Governor Andrew Bailey said in a statement: “The Bank is monitoring developments in financial markets very closely due to the significant revaluation of financial assets.”
“The role of monetary policy is to ensure that demand does not outpace 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 review” at its next scheduled meeting in November, “and act on it.”
“The MPC will not hesitate to change interest rates as needed to bring inflation back to its 2% target sustainably over the medium term, in line with its target,” he added.
The announcement by the Chancellor Liz Truss administration shows a series of tax cuts not seen in the UK since 1972 and an unflinching return to “trickle-down economics” promoted by the likes of Ronald Reagan and Margaret Thatcher.
Radical policy moves have placed the UK against most of the major global economies at a time of sky-high inflation and a deepening cost of living crisis.
The UK Treasury on Monday afternoon said the government would set out its medium-term fiscal plan on November 23.
Kwarteng asked the Independent Office for Budget Responsibility to provide a full forecast along with the plan, the Finance Ministry said.
To be sure, Friday’s small budget doesn’t come with the usual economic projections from the OBR.
“The Fiscal Plan will provide more detail on the government’s fiscal rules, including ensuring that debt falls as a share of GDP over the medium term,” the Treasury Department said in a statement.
The government also intends to implement supply-side growth reforms from next month, it added.
This is breaking news. Please check back for updates.
– CNBC’s Elliot Smith contributed to this report.
