BoE chief economist signals ‘significant’ response to turmoil

The Bank of England. (Photo: Facebook)

LONDON — The Bank of England’s (BoE) chief economist indicated Tuesday that the markets shock caused by Britain’s tax-slashing budget called for a “significant” monetary policy action at its next meeting in November.اضافة اعلان

“We have all seen recent significant fiscal news that has had significant market consequences,” Huw Pill told a London event hosted by UK lender Barclays.

“It’s hard not to draw the conclusion that all this will need a significant monetary policy response.”

Pill was speaking one day after sterling tanked to a record dollar low on fears a UK government tax-cutting plan could derail public finances.

The pound rebounded slightly Tuesday after the BoE said policymakers were monitoring markets and would “not hesitate” to raise interest rates to curb runaway inflation.

But the bank also signaled that it would wait until its next policy meeting on November 3 before fully assessing the impact of the contentious UK plan.

Finance minister Kwasi Kwarteng on Friday delivered a major tax-cutting budget, which was aimed at boosting the recession-threatened economy.

But investors were spooked by the huge amount of borrowing likely needed for the package, which critics said would benefit the rich far more than the poorest hit by the cost-of-living crisis.

Economists estimate the whole tax package at between £100–200 billion, largely fuelled by a borrowing splurge.

In reaction, the pound tumbled Monday to an all-time low at $1.0350, perilously close to parity.

Just under one week ago, the BoE had ramped up its key interest rate by a half-point to 2.25 percent.

Market watchers now expect the BoE’s key rate to climb to almost 6.0 percent by the start of next year.

Pill meanwhile dismissed suggestions of an emergency meeting of the BoE’s rate-setting monetary policy committee.

“Talking about November seems a long time away,” he added Tuesday.

“But the better way to run monetary policy is to run it with a low-frequency approach (and) with a considered approach.”

In late afternoon deals on Tuesday, the pound rose 0.6 percent to $1.0755, having earlier rebounded by more than one percent.

And the yield on Britain’s 10-year government gilts spiked close to 4.5 percent, the highest since late 2008, as investors bet on more bumper rate increases in the works.

The BoE, like central banks around the world, has hiked interest rates a number of times this year in an attempt to cool decades-high inflation.

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