By David Milliken and Marc Jones
LONDON (Reuters) -The Bank of England is likely to deliver a “significant policy response” to finance minister Kwasi Kwarteng’s huge tax cuts but it should wait until its next scheduled meeting in November before making its move, BoE Chief Economist Huw Pill said.
Kwarteng, following up on new Prime Minister Liz Truss’s promise to sweep aside the economic “orthodoxy”, sent the pound tumbling and British government bond yields soaring when he announced sweeping tax cuts to kickstart the economy on Friday.
“I do want to flag clearly at this point that in my view the combination of fiscal announcements that we’ve seen will act as a stimulus,” Pill told the Barclays-CEPR International Monetary Policy Forum in London on Tuesday.
“It is hard not to draw the conclusion that this will require a significant monetary policy response,” he said, adding the financial market upheaval would have a big impact on the economy and would be factored into the BoE’s next forecasts.
Some investors and economists have said the British central bank should hold an emergency meeting now to deliver a big interest rate hike to prop up the value of the pound and avoid further inflation pressure.
Pill acknowledged that the Nov. 3 date of the BoE’s next scheduled policy announcement seemed a long way away but said it was better for central banks to take a “more considered approach, a lower-frequency approach”.
In the meantime the BoE would rely on communicating its intentions, an approach that would require respect for the central bank’s independence from the government, he said.
Separately on Tuesday, Kwarteng told bankers, insurers and asset managers he was “confident” that his economic strategy would work and he stressed the need for close cooperation with the BoE.
On Monday, Governor Andrew Bailey said the BoE “will not hesitate” to raise interest rates if needed but also said the Monetary Policy Committee would make a full assessment of the situation at its November meeting.
The pound was higher against the dollar on Tuesday, a day after hitting a record low.
British government bonds, which suffered their biggest sell-off in decades on Friday and Monday, recouped some of their losses early on Tuesday but lost ground again following Pill’s remarks.
(Reporting by David Milliken and Marc JonesWriting by William SchombergEditing by Philippa Fletcher)
