The Bank of England will change interest rates by “as much as needed” to get inflation back under control from current runaway levels, Governor Andrew Bailey said on Monday after a market rout sparked by the Government’s mini budget.
Chancellor Kwasi Kwarteng said his officials are “monitoring developments in financial markets very closely” after the pound plummeted to its lowest levels on record against the dollar.
Sterling hit its lowest level against the dollar since decimalisation in 1971, falling by more than 4% to just 1.03 dollars in early Asia trading before rebounding to 1.09 dollars on Monday afternoon as speculation mounted over an intervention by the Bank of England, with officials there understood to be considering making an emergency statement this afternoon.
The euro also hit a fresh 20-year low against the dollar amid recession and energy security fears ahead of what is expected to be a painful winter across Europe as the war in Ukraine shows no sign of ending.
Experts warned the pound’s plunge towards parity with the dollar will send the cost of goods soaring even higher, potentially worsening the cost-of-living crisis, while it also means it will be more expensive for the Government to borrow money.
The Governor of the Bank of England has said it will not “hesitate to change interest rates by as much as needed”,
Kirsty O'Connor
Downing Street has signalled that it will push ahead with its massive package of tax cuts even as the pound plunged to an all-time low against the US dollar
Dylan Martinez
Andrew Bailey said: “The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
“In recent weeks, the Government has made a number of important announcements. The Government’s Energy Price Guarantee will reduce the near-term peak in inflation. Last Friday the Government announced its Growth Plan, on which the Chancellor has provided further detail in his statement today.
“I welcome the Government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.
“The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term. As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and 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.”
Downing Street has signalled that it will push ahead with its massive package of tax cuts even as the pound plunged to an all-time low against the US dollar amid hammered market confidence in the Government’s economic plans.