The Bank of England has said it “will not hesitate” to raise interest rates to prop up the value of sterling after a day or turmoil on the markets which saw the pound slump to its lowest level for at least half a century.
British finance minister Kwasi Kwarteng announced he would bring forward an announcement of a “medium-term fiscal plan” to start bringing down debt levels following an adverse reaction to his £45 billion (€50 billion) package of tax cuts set out on Friday.
The UK finance department, known as the Treasury, said it would now be published on November 23rd, having previously been slated for the new year, and will include further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term.
At the same time the Office for Budget Responsibility will publish its updated forecasts for the current calendar amid widespread criticism that there was no update when Mr Kwarteng set out his “plan for growth” last week.
— Bank of England (@bankofengland) September 26, 2022
Bank of England governor Andrew Bailey welcomed Mr Kwarteng’s commitment to “sustainable economic growth” as well as the promise to involve the OBR.
He said the bank’s monetary policy committee, which sets interest rates, will make a full assessment of the impact on inflation and the fall in sterling, at its next scheduled meeting in November and then “act accordingly”.
“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit,” he said in a statement.
The move will been seen as an attempt to reassure the marked which were spooked by Mr Kwarteng’s unexpectedly large plans for tax cuts funded by a massive expansion in government borrowing.
Those concerns were only heightened by comments at the weekend by Mr Kwarteng suggesting that there were further tax cuts on the way.
At one point, it was thought that the Bank of England would be forced to step in with an emergency interest rate hike amid fears the pound could drop to parity with the dollar.