After Prime Minister Liz Truss’s proposal to slash taxes while increasing borrowing provoked fear among investors concerned it could fuel inflation and destabilize government finances, UK leaders are attempting to calm markets.
The Bank of England said Monday that it is “monitoring developments in financial markets very closely in light of the significant repricing of financial assets.”
At its upcoming meeting in November, it announced that it will examine the impact of the government’s policies on inflation and “not hesitate to alter interest rates if required.”
Immediately after the UK Treasury announced that Kwasi Kwarteng, the nation’s finance minister, will lay out strategies to ensure the sustainability of UK debt over the medium term on November 23, the bank released its remarks. At that time, the nation’s budget watchdog will also be required to produce an updated forecast.
Since Truss and Kwarteng unveiled their economic plan on Friday, the British pound has plummeted and the price of government bonds has fallen. Although it is meant to promote economic growth, investors are alarmed by the unconventional strategy and have expressed their concerns.
The Bank of England is attempting to cool the economy in order to contain the fastest price increases among the G7 nations, while the Truss administration wants to promote demand to relieve a recession this winter.
The pound hit a record low against the US dollar on Monday as a result of this tension and worries about tens of billions of dollars in new borrowing, and this has caused a significant sell-off in UK government bonds. This might only make the Bank of England’s struggle to manage inflation harder.
“It remains to be seen whether today’s statement by the government and the Bank of England will be enough to ease the markets’ fears about the government’s fiscal policy,” said Paul Dales, chief UK economist at Capital Economics.
“The initial reaction in the markets, with the pound falling again after it regained some ground, suggests that the issue may not be put to bed yet.”
This article was originally posted here.