The Bank of England intervened to reassure markets on Tuesday, saying it would not hesitate to change interest rates to control inflation. As a result, the pound increased during early trading.
Following its plummet to a historic low of less than $1.04 versus the US dollar on Monday, sterling rose to $1.08 when markets opened in the UK.
The FTSE also increased after the opening as the uproar subsided.
Since Friday, when chancellor Kwasi Kwarteng unveiled the government’s economic plan, which included significant tax cuts financed by high borrowing, the markets have been volatile.
The pound plunged as a result, reaching historic lows on Monday after Mr. Kwarteng hinted at potential future tax cuts over the weekend.
Following the sharp declines in the pound, rumors circulated that the Bank of England may impose an emergency interest rate hike on Monday.
But in the end, Governor Bailey only issued a statement.
He declared that in order to bring inflation back to its target of 2%, the Bank would adjust interest rates “by as much as needed.”
Even while the pound has since stabilized, traders were still wagering on Tuesday that there was a 43% chance it would fall to just $1 before the end of the year, and experts at Morgan Stanley and Nomura predicted it would even reach or cross that mark.
According to Jordan Rochester, a strategist at Nomura, “I think it’s going to become worse regrettably,” Rochester told Bloomberg.
I want things to not become worse. My country of employment is here.
Due to the unstable market and rising interest rates, which could triple next year, certain banks and building societies in the UK have stopped offering mortgages to new consumers.
Three lenders have already discontinued their products: Virgin Money, Halifax, and Skipton Building Society. More are anticipated to do the same.
According to Virgin Money, the company has temporarily stopped offering mortgage solutions to new business customers due to market conditions.
Existing applications that have already been submitted will be processed normally, and we’ll keep providing our product transfer range to current clients.
We plan to introduce a new product line this week.
Due to “major changes in mortgage market pricing,” Halifax announced that it was discontinuing all fee-based mortgages.
The Skipton Building Society claimed that in order to “reprice,” it has also discontinued its offers to prospective consumers.
Inflation measured by the Consumer Price Index is already at 10%, and it is anticipated to go even more, reaching a peak later this year.
In response, the Bank of England is anticipated to increase the base rate by an additional two percentage points by the end of the year. However, experts predict that the rate may almost triple in 2023 to 6%.
The announcement of a “medium-term fiscal strategy” to begin reducing debt levels has been promised by the chancellor.
The Treasury announced that it will now be released on November 23, rather than the new year’s day, and would include more information on the government’s fiscal rules, such as making sure that debt declines as a proportion of GDP over the medium term.
In response to considerable criticism that there was no update when Mr. Kwarteng presented his “plan for growth” last week, the Office for Budget Responsibility will release its updated forecasts for the current calendar at the same time.