The Bank of England has decided not to implement an emergency rise in interest rates, prompting further selling of the pound and leaving ministers struggling to prevent a full-scale loss of financial market confidence in its economic strategy.
The pound has fallen to record lows against the dollar following finance minister Kwasi Kwarteng’s mini-budget, with many analysts predicting it could reach parity before the slide ceases.
The pound briefly hit $1.03 in Far East trading before bouncing back slightly to around $1.08, but was back down by two cents within minutes of the announcement from the bank that it intended to wait until November before responding to recent turbulence.
Some lenders – including Halifax, the UK’s biggest mortgage provider – have temporarily withdrawn mortgage products in light of the announcement.
Roy Noble of Medena Holdings forecast that the pound would end the year below parity against the dollar, stating that investors were “clearly unimpressed” with the strategy developed by Kwarteng and new British Prime Minister Liz Truss. Noble also described the decision to hugely increase government borrowing at a time of rising interest rates as “reckless beyond belief”.
Paul Donovan, chief economist at UBS global wealth management, said investors were inclined to see the ruling Conservative party as a “doomsday cult”.
The response of the markets to the mini-budget has caused dismay among Conservative politicians, and there has even been talk of a leadership challenge against the prime minister, who only assumed the position on September 6th. Many within the party are hesitant to show any signs of disunity at present though, fearing a general election at a time when the opposition Labour party is racing ahead in the polls.