THE Governor of the Bank of England has said he will not hesitate to hike interest rates as necessary in a much-anticipated statement after the pound plummeted to its lowest ever level against the US dollar.
The pound’s plunge on Monday sparked speculation that the Bank of England may be forced to raise interest rates again in an emergency move to stem the run on sterling.
Market experts said the Bank may need to increase rates by as much as one percentage point to 3.25%, just days after it hiked them to 2.25% - their highest level since November 2008.
The pound dropped to $1.03 briefly in the early hours of Monday morning before recovering slightly to $1.09 on Monday afternoon. It is understood the expectation of a statement from the Bank may have helped with this.
Governor Andrew Bailey said that the Monetary Policy Committee (MPC) would discuss the impact of the Chancellor’s new mini-budget when it meets again in early November – quashing speculation that the Bank might announce emergency measures this week.
The Bank's aim is to bring down inflation to its 2% target in the medium-term.
The full statement from 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 as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit."
It comes after Chancellor Kwasi Kwarteng announced plans on Friday to lift the cap on banker's bonuses, cut taxes for the highest earners, and scrap the planned hike to corporation tax as part of a mini-budget.
Treasury estimates put the overall measures contained in the "mini-budget" as costing nearly £45 billion a year by 2026.
Over the weekend, the SNP demanded the House of Commons be recalled to allow for the plans to be scrutinised by MPs.
Alison Thewliss, SNP shadow chancellor, said the collapse of the pound shows the "Tory-made cost-of-living crisis is rapidly getting worse", and branded Kwarteng's fiscal plans as a budget for the "super-rich".
