Kwarteng’s tax cuts will force ‘significant’ interest rate rises by Bank of England
A senior Bank of England official has warned “significant” increases in interest rates will have to be imposed by the central bank in response to tax cuts put forward by Kwasi Kwarteng in his mini-budget.
The Bank’s chief economist, Huw Pill, said the chancellor’s planned tax cuts would act as a stimulus and increase inflationary pressures, with the result that interest rates would need to go higher than previously forecast.
“In my view, a combination of the fiscal announcements we have seen will act a stimulus to demand in the economy,” he said. “It is hard not to draw the conclusion that this will require a significant monetary policy response.”
Pill’s remarks are likely to further spook homebuyers and mortgage borrowers near the end of a fixed-rate mortgage about the cost of financing their loans.
Lenders have alreadypulled hundreds of mortgage deals this week, following Kwarteng’s mini-budget and the pummelling the pound has taken on foreign exchanges, as they struggle to price their products due to the financial market volatility.
Some economists have said that if interest rates rise to levels now expected by financial traders, who are forecasting the Bank’s base rate rising to nearly 6% by spring 2023, the UK property market will nosedive and hundreds of thousands of homeowners could find themselves struggling with monthly mortgage payments.
Pill said the central bank had no mandate to maintain the pound at a particular level or regulate the value of British assets, which have slumped in value as sterling has tumbled in recent weeks.
However, he said a decline in the value of property and other financial assets had an influence on consumer and business spending and the broader health of the economy.
“As a small, open,
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