LONDON (Reuters) – The Bank of England needs to raise interest rates significantly between meetings early next week to calm markets and restore credibility. German Bank (ETR 🙂 said the analyst on Friday.
British bond yields rose by the most in a single day in more than three decades on Friday and the pound fell 3% to a new 37-year low after British Finance Minister Kwasi Quarting put in place a series of major tax cuts that will be financed by public borrowing.
In a research note, Deutsche Bank’s George Saravelos said the needed policy response was clear: “A significant rate hike between meetings from the Bank of England as soon as next week to restore credibility with the market.”
He said the Bank of England’s decision to cancel its planned sale of British government bonds would only make matters worse.
He added that a strong signal from the Bank of England that they are willing to do “whatever it takes” to bring inflation down quickly and move real yields into positive territory would help.