The Bank of England has issued a statement saying it’s prepared to decisively raise interest rates to boost the value of sterling and curb inflation.
The value of the pound slumped to an all-time low level against the US dollar following the government’s mini-budget on Friday.
The mini-budget introduced a number of tax cuts, some disproportionately benefitting the wealthy, and pledged to up national borrowing to compensate – spooking investors in the process.
Banks have been acting nervously this week, repricing mortgages and pulling some rates without any notice.
The decision to cut stamp duty could also have an upward impact on house prices, in an environment where prices already increased by 15.5% in the year to July.
The Bank said: “The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
“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 by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit.”
The value of the pound fell by 4% to an all-time low of $1.0382 on Monday.
The current UK inflation rate is 9.87%, posted in the year to August.
