The Bank of England could hold an emergency meeting of its Monetary Policy Committee and resort to a more aggressive increase in the benchmark interest rate if sterling continues to fall at the same rapid pace as it has this week. The Observer reported this on Sunday, citing former independent member of the Bank of England's monetary policy committee Martin Robert Weale.
"It's hard to imagine that the current tax cut policy will end happily. I expect sterling to continue to fall next week, and if that happens, the Bank of England may have to intervene with an even higher key rate," he is quoted as saying. The last time the regulator raised the rate only three days ago on Thursday it was increased by 50 basis points to 2.25% from 1.75%. The next meeting of the Monetary Policy Committee is scheduled for November 3. Most experts estimate that the rate hike will continue, and that it will exceed 4.5% in 2023.
On September 23, the head of the U.K. Treasury Kwasi Kwarteng announced that the government of Liz Truss, who took over as prime minister of Great Britain on September 6, will cut taxes in the country in order to stimulate economic growth. Among other measures, he announced that the maximum rate of income tax in the country would be cut from 45% to 40%, social security contributions would return to their previous level, and plans to raise the 19% to 25% corporate income tax were canceled.
According to estimates by The Daily Telegraph, the total amount of money that will be lost to the budget because of tax cuts could be about £45 billion a year in Britain, which is comparable to 1.8% of GDP. Subsidies to freeze electricity prices, according to the calculations of the newspaper, could cost the budget £150 billion over two years. The British government has not taken such radical steps for half a century.
The FTSE 100 Index of the London Stock Exchange, which is based on the shares of a hundred companies with the largest capitalizations, fell 1.97% on Friday.