LONDON (Parliament Politics Magazine) – The pound hit a record low versus the US dollar, prompting the Bank of England to declare that it will “not hesitate” to raise interest rates in order to combat inflation.
The Bank stated that it was “closely monitoring developments” and will decide on any course of action in November.
In an effort to reassure investors, the Treasury announced that it would publish a plan to address debt.
Tuesday’s currency trading in Asia saw the pound increase by over 1% to surpass $1.08.
Some UK lenders announced their decision to stop accepting new mortgage deals on Monday.
The biggest mortgage lender in the UK, Halifax, stated it will temporarily withdraw all mortgage products that came with a free because of the market instability.
Additionally, Virgin Money and Skipton Building Society also no longer provide mortgage products to new clients.
After Chancellor Kwasi Kwarteng promised additional tax cuts over the weekend on top of the biggest tax cuts in 50 years he unveiled in Friday’s mini-budget, Sterling hit an all-time low against the US dollar.
As the world’s financial markets reacted to the substantial rise in government borrowing necessary to finance the cuts, the pound had been falling.
Imported items are more expensive to purchase when the pound is weak, and this could result in further increases in the cost of living. Oil and gas imports among other commodities are considerably more expensive because they are valued in dollars.
The rate at which prices increase (inflation)in the UK is already increasing at its quickest rate in forty years.
Some economists believe the Bank of England will soon hold an emergency meeting to increase interest rates in an effort to stop the decline and cool rising prices.
Instead, the Bank of England stated that it was very closely following developments in financial markets and would provide a comprehensive analysis at its next meeting on November 3.
Investors now expect interest rates to more than double from their current level of 2.25% to 5.8% by next spring in order to reduce excessive inflation, which is anticipated to be fuelled by the significant tax cuts revealed in Friday’s mini-budget.
“Not affordable”
The average homeowner refinancing a fixed rate mortgage for two years in the first half of next year would see monthly payments increase to £1,490 from £863, the chief UK economist at Pantheon Macroeconomics, Samuel Tombs said.
“Many simply won’t be able to afford this,” he said.
