Bank of England says inflation pressures may cause it to raise interest rates further
U.K. bond yields surged to fresh 14-year highs after the International Monetary Fund criticized the government’s proposed £45 billion of debt-funded tax cuts and the Bank of England inferred it would hike interest rates further to combat the additional inflationary pressure the fiscal strategy may unleash.
The 10-year gilt yield TMBMKGB-10Y rose 4.4 basis points to 4.558% and the more monetary policy-sensitive 2-year gilt yield TMBMKGB-02Y gained 5.3 basis points to 4.670%. Bond yields move in the opposite direction to prices. The International Monetary Fund late on Tuesday put out a scathing assessment of Kwarteng’s proposals, which included tax cuts alongside already announced energy support payments, mainly paid for by an extra £64 billion of bond issuance.
Indeed, Bank of England chief economist Huw Pill suggested on Tuesday that the central bank may have to quicken the pace of interest rate rises in response to the budget, though it would wait until its scheduled meeting in November before making a decision.
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