Kwasi Kwarteng and the Bank of England came under growing pressure on Tuesday to take more dramatic action to prop up the pound, as homeowners faced a steep hike in borrowing rates.
Although the pound rallied on Tuesday morning, hitting $1.08 in early trading, some senior Conservatives want the Chancellor to go further to calm financial markets. Last night some of the country’s biggest lenders pulled mortgage deals following sterling’s fall to an all-time low against the dollar on Monday.
At the same time the Bank is coming under pressure to hold an emergency meeting where they could push interest rates even higher to try to restore confidence in the UK economy. Homeowners are already facing a painful rise in their monthly mortgage payments as banks and building societies reprice their rates to reflect last week’s rise in the Bank of England’s base rate to 2.25 per cent.
But with so much uncertainty following the market reaction to Mr Kwarteng’s £45billion tax slashing mini-budget on Friday, a number of lenders including Halifax, Skipton and Virgin Money all withdrew mortage deals from the market.
Brokers said they expected more to follow suit in the coming days.
The Bank’s statement on Monday, that its monetary policy committee which sets interest rates would make a full assessment at its next scheduled meeting in November and then “act accordingly”, appears to have restored some calm.
But with many Tory MPs anxious over the market reaction to Mr Kwarteng’s growth plan last week — already dubbed “the Kamikwaze budget” — and a new poll by YouGov published by The Times showing Labour has taken a 17 point lead over the Tories, some Conservatives want the new chancellor to be more decisive now.
Sir Bob Neill, Tory chairman of the Commons justice committee, told the Standard Mr Kwarteng “has got to move very quickly to restore confidence in the market...people will be worried about the inflationary effect of unfunded tax cuts. What he’s got to do is bring forward his mid-term fiscal plan and I think we need to be talking to the markets to reassure them. Equally we should be thinking again about the top tax band.”
Another senior Tory, Huw Merriman, chairman of the Commons transport committee, tweeted: “Those of us who backed Rishi Sunak lost the contest but this poll suggests the victor is losing our voters with policies we warned against.”
Those of us who backed Rishi Sunak lost the contest but this poll suggests that the victor is losing our voters with policies we warned against. For the good of our country, and the livelihoods of everyone in our country, I still hope to be proven wrong https://t.co/8nOcKlKEIB
— Huw Merriman MP (@HuwMerriman) September 26, 2022
Meanwhile Charlie Bean, former deputy governor of the Bank of England, said he would have advised the Bank to call an emergency meeting.
While Government borrowing costs — a benchmark used by mortgage lenders to set interest rates for homeowners — fell by 0.2 percentage points today after hitting 4 per cent yesterday, many borrowers face a huge jump in their home loan repayment costs. Simon French from City stockbroker Panmure Gordon said: “Mortgage deals getting pulled puts sand in the cogs of the UK property market.”
At the Labour conference in Liverpool, shadow health secretary Wes Streeting accused Mr Kwarteng of frightening the markets with his sweeping tax-cutting plans.
