Mortgage lenders halt some deals despite pound steadying
Some mortgage deals have been withdrawn by banks and building societies amid forecasts of a sharp rise in interest rates
The pound steadied in early trading in Asian markets on Tuesday as it recovered ground slightly from the record low of 1.0327 against the US dollar it struck early on Monday morning.
Sterling sat at around 1.08 dollars by 7am on Tuesday, but economists have warned it could still fall to parity with the dollar this year for the first time.
Lenders are withdrawing some of their mortgages.
Virgin Money and Skipton Building Society halted mortgage offers for new customers, but said submitted applications would still be processed.
Halifax said it would stop mortgages with product fees.
And the Bank of England said it “will not hesitate” to raise interest rates to prop up the value of sterling in the wake of Chancellor Kwasi Kwarteng’s £45billion package of tax cuts set out on Friday.
The Chancellor also said he would bring forward an announcement of a “medium-term fiscal plan” to start bringing down debt levels.
The Treasury said it would now be published on November 23 and would 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.
At one point, it was thought that the Bank would be forced to step in with an emergency interest rate hike amid fears the pound could drop to parity with the dollar.
But governor Andrew Bailey said the monetary policy committee, which sets interest rates, would 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”.
Mr Bailey welcomed the Chancellor’s commitment to “sustainable economic growth” as well as the promise to involve the OBR.
A statement read: “The MPC will not hesitate to change interest rates by as much as needed to return inflation to the two percent target sustainably in the medium term, in line with its remit."
The move will be seen as an attempt to reassure the markets which were spooked by Mr Kwarteng’s unexpectedly large plans for tax cuts funded by a massive expansion in Government borrowing.
Alastair George, chief investment strategist at Edison Group, said: “There is no rate increase today and speculators will enjoy the prospect of two months of Bank of England inactivity if the statement is taken at face value."
For Labour, Shadow Chancellor Rachel Reeves warned the Government could not afford to wait to November to set out its plans, and that the public needed reassurance now.
She said: “It is unprecedented and a damning indictment that the Bank of England has had to step in to reassure markets because of the irresponsible actions of the Government.”
Earlier, Downing Street made clear that the Government would not be deflected from its tax-cutting agenda by the reaction of the markets.
The Prime Minister’s official spokesman said the UK had the second lowest debt-to-GDP ratio in the G7 group of leading industrialised nations and that the Government’s plans were “fiscally responsible”.
He added: “The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus."