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After the pound hit a historic low versus the US dollar, the Treasury and the Bank of England both made an effort to comfort investors. At its meeting, the Bank of England declared that it would “not hesitate” to raise interest rates to combat inflation.
The Treasury announced that it would publish economic estimates in November along with strategies for debt reduction.
After the two announcements, the pound plummeted once more, and some UK lenders announced they were stopping the creation of new mortgage packages.
In reaction to the volatility, Halifax, the biggest mortgage lender in the UK, announced it would temporarily stop offering any mortgage plans containing fees.
Additionally, new consumers are no longer being offered mortgage products by Virgin Money and Skipton Building Society.
Halifax, a member of the Lloyds Banking Group, is altering its product line as a result of significant changes in the cost of finance.
After Chancellor Kwasi Kwarteng announced he intended additional tax cuts, the pound nearly hit an all-time low versus the US dollar, but it began to rebound later in the day.
As revealed in Friday’s mini-budget, the greatest tax cuts in fifty years will necessitate a sharp increase in government borrowing, which has been sending the pound down.
Imported items are more expensive to purchase when the pound is weak, which could further increase the cost of living. Oil and gas imports are considerably more expensive because they are valued in dollars.
Some experts had projected that the Bank of England would convene an emergency meeting soon to hike interest rates to stop the decline and cool rising prices.
However, the Bank of England chose not to hold an urgent meeting to raise interest rates.
It stated that it was “watching developments in financial markets very closely” but added that it would undertake a thorough evaluation of the impact of the government’s statements on demand and inflation, as well as the decline in sterling, at its next scheduled meeting.
In an effort to soothe the markets, the government announced that the Office for Budget Responsibility, an independent forecaster, would provide complete growth and borrowing predictions in its financial plan on November 23.
Further information regarding the government’s fiscal policies, particularly how it intends to try to reduce debt, was also promised.
The Treasury and the Bank of England also attempted to reassure people in the late afternoon.
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The Treasury has added a chronology with dates to it. In addition, several cabinet ministers will make statements about the concepts we heard about on Friday.
And then there will be a parliamentary moment in less than two months. The “Medium Term Fiscal Plan” and the computations made by the Office for Budget Responsibility.
In other words, the Treasury is trying to convey this message: don’t worry; we have things under control.
Another interest rates raise on the horizon
Capital Economics senior UK economist, Paul Dales, said it was “impossible to tell” if the Bank and the Treasury’s pronouncements would be “adequate to arrest the rot,” but added that it might be feasible.
It will be the ninth consecutive interest rates increase if the Bank does issue one on Thursday, November 3.
By April of next year, rates are predicted by the financial markets to rise to 5.8% from 2.25%.
According to Martin Weale, a professor of economics at King’s College London and a former member of the Monetary Policy Committee of the Bank of England, market traders have been alarmed by the government’s initiatives.
In comparison to the report the Office for Budget Responsibility would now release in November, he noted, the projection the Office for Budget Responsibility would have released last week at the time of the mini-budget would have been based on lower interest rates.