By David Millliken and Muvija M
LONDON (Reuters) – Bank of England Governor Andrew Bailey said on Monday the Bank of England would “not hesitate” to raise interest rates if needed to meet its 2% inflation target, and was watching financial markets “closely” after sharp moves. in asset prices.
Sterling fell to a record low against the US dollar earlier on Monday in Asian trade, extending losses that accelerated on Friday after Finance Minister Kwasi Koarting made his first financial statement, promising deep tax cuts.
“The bank is closely monitoring developments in the financial markets in light of the significant re-pricing of financial assets,” Bailey said in a statement.
“The Monetary Policy Committee will not hesitate to change interest rates as necessary to bring inflation back to the 2% target sustainably over the medium term in line with its mandate,” he added.
The Bank of England raised interest rates to 2.25% from 1.75% on Thursday, and on Monday there was growing speculation in the financial markets that the Bank of England would make an emergency rate hike – which contributed to sterling’s recovery from previous lows.
However, traders saw the BoE’s statement reducing the likelihood of a move ahead of the Bank of England’s next interest rate announcement on November 3.
Sterling is down more than one cent against the dollar and one-week interest rate swaps are priced at much lower rates than just before.
Shortly before the BoE statement, Finance Minister Kwasi Quarting said he would publish a medium-term fiscal plan on November 23 and the Office of Budget Responsibility would publish updated growth and borrowing forecasts.
Paul Dills, chief UK economist at Capital Economics, said the government and the Bank of England had done “the bottom line” to try to stem the slide in the pound and government bond prices.
“It is possible that this will be enough to stop the mold,” he said. “But … markets may need more reassurance and some actual action … details on fiscal rules, a change in policy from the government and/or a rate hike from the bank at an emergency meeting,” he added. .