The pound after the Bank of England said it’s closely monitoring financial markets. The BoE didn’t say it would take emergency action to stem the decline of the pound, which hit a record low earlier Monday. The pound fell by nearly 2% after the statement but didn’t return to record lows. Loading Something is loading.
The British pound turned lower Monday after the Bank of England said it’s watching financial markets, a statement that didn’t include any specific action the central bank would take to halt the pummeling of the country’s currency.
“The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets,” BoE Governor Andrew Bailey said in a statement Monday.
The pound fell by 1.8% to $1.0651 after the statement was released. The bank issued the afternoon statement hours after pound sterling sank to a historic low against the dollar, triggered by fears over the UK government’s proposed £45 billion ($48.6 billion) mini-budget. The pound during Asian trading sank by nearly 5% to $1.0350, the lowest level since 1971 when the UK switched to a decimal-based currency system.
Cable, the nickname for the pound-dollar exchange, later recovered some ground and briefly bounced back above $1.09. Financial markets were looking for the Bank of England to say it would raise interest rates or enact emergency measures to aid the pound.
“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 [Monetary Policy Committee] 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,” said Bailey.
The central bank’s next policy meeting was scheduled for November 3. The MPC has raised the UK’s benchmark interest rate seven times since December to control inflation. It raised the rate last week by 50 basis points to 2.25%. British inflation was 9.9% in August, slightly easing from 10.1% in July.
The pound has been hit after the government, under new Prime Minister Liz Truss, last week introduced a “Growth Plan” aimed at a 2.5% trend of economic expansion. The so-called mini-budget includes proposals for the largest tax cuts since 1972. The plan has spooked investors who fear it may increase inflation further and sharply increase government debt.
Financial markets on Monday were pricing in expectations for UK interest rates to rise to soar to 6% next year on the back of sterling’s fall.
Ahead of the BoE’s statement, Mark Makepeace, founder and former chief executive of FTSE Russell, said on CNBC the pound could fall to parity with the dollar if the bank didn’t step in. FTSE Russell is a subsidiary of the London Stock Exchange Group and its global lineup of financial indexes includes the closely watched FTSE 100 gauge of UK blue-chip stocks. The FTSE 100 ended Monday’s session up by less than 0.1%.
Nomura earlier Monday said it expects the pound to reach parity with the dollar by the end of November, and for it to fall to 0.975 relative to the dollar by the end of 2022.
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