Bank of England urged to step in to protect credit rating after blowout mini budget


ING added: “Investors will be very interested in what the ratings agencies have to say about Britain’s fiscal plans.”

These concerns prompted Andrew Bailey to speak out or even impose an emergency interest rate hike to allay investor fears.

Adam Posen, a former member of the Monetary Policy Committee (MPC), wrote on Twitter that he “would expect – and encourage – the Governor/MPC to say publicly by the middle of the week that if the pound sterling fall, rates rise.

JPMorgan economist Allan Monks said an emergency decision was “unlikely”, he called on Bailey to “deliver an assertive and hawkish speech before November to reassure the markets visible jitters”.

Deutsche Bank analysts said on Friday that Threadneedle Street needed to make a “big rate hike” as early as this week to “regain credibility with the market”.

Despite the turbulent atmosphere, the Chancellor confirmed on Sunday that the Government planned to introduce further tax cuts in the New Year on top of the £45billion package announced last week, as he refused to comment on market turbulence.

However, he has repeatedly stressed that the government will draw up plans that show it is committed to reducing the UK’s debt-to-GDP ratio in the “medium term”.

Gerard Lyons, chief economic strategist at Netwealth and external adviser to the Prime Minister, said: “The markets have misinterpreted the fiscal stance. What we have is a fiscal and policy environment that will stabilize the economy in the short term.

“Furthermore, the feature that would have blown our public finances would have been a very deep recession, and the policy effectively ruled out the deep recession that the markets feared.”

Yet there are growing fears that unfunded tax cuts could lead to the downgrading of the UK’s credit rating next month.

Lord Bilimoria, the former president of the Confederation of British Industry, said: “A pound below parity with the dollar would be an unacceptable situation. The Bank will therefore have to continue raising interest rates depending on the strength of the pound, but also to help fight inflation.

“The markets have reacted in a way at the moment. But they should give the strategy a chance for the government to implement these measures.

“First of all, [the Governor] must communicate all this. We must continue to be a magnet for investment, and all of this will help us. We need to get the message out given this panic reaction we’ve seen in the markets so far.

It comes as Mr Kwarteng is due to meet senior city officials on Tuesday morning to discuss how ministers can trigger a ‘Big Bang 2.0’ in the Square Mile.

The chancellor and Andrew Griffith, the city minister, will meet with leaders of the city’s insurers and asset managers to discuss details of the deregulation campaign, a Whitehall source said.

However, senior City sources have warned that Mr Kwarteng will need to win the trust of the financial markets if the government is to boost foreign investment in the UK.

A source said the new Chancellor would need “deep market confidence” to prevent further devaluation of the pound, which would boost inflation and help drive up interest rates.

They added that although the devaluation of the pound sterling would stimulate economic activity, the government would need the confidence of the financial markets to benefit from a possible boost to foreign investment.

The Bank of England declined to comment.


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