Bank of England (BoE) chief economist Huw Pill admitted on Tuesday that the shock to the UK market caused by the new government’s budget announcements called for strong monetary policy action, but not before the meeting in early November.
We have all seen substantial budget announcements, which have resulted in a substantial market reaction. It’s hard to imagine that this doesn’t call for a substantial monetary policy response, said Pill, speaking at a forum hosted by Barclays Bank.
On Friday, the government of Liz Truss announced a plan of aid for energy bills and tax cuts estimated by economists at the amount of 100 to 200 billion pounds, the financing of which remains unclear and whose impact on the economy. economic activity of the United Kingdom is not precisely studied.
The pound hits an all-time low against the dollar
The pound slumped early in Monday’s trading to its all-time low against the dollar, $1.0350, and the government bond yield, which rises when demand falls, hit its highest since late 2008 at 4.25. % for ten-year securities.
The market is now expecting determined action from the BoE, and some investors expect key rates, which were raised last Thursday by 0.5 percentage points to 2.25%, to climb almost 6% at the start of 2023.
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Mr. Pill, on the other hand, rejected the idea of an emergency meeting of the BoE: it is better that monetary policy is done with a measured and regular approach, he affirmed.
The day before, Bank Governor Andrew Bailey had assured in a press release that he was ready to raise rates as much as necessary to bring inflation back to its target, but had also mentioned the November meeting.
The pound, which rebounded more than 1% before Mr. Pill’s intervention, reduced its gains by 0.59% to 1.0755 dollars around 2:15 p.m. GMT (4:15 p.m. Paris).