LONDON (Reuters) -The Bank of England is poised to respond to changes in Britain’s tax and spending policies under Prime Minister Liz Truss but it remains to be seen if interest rates go up as much as investors have been expecting, Deputy Governor Ben Broadbent said.
“The MPC is likely to respond relatively promptly to news about fiscal policy,” Broadbent said in a speech at Imperial College on Thursday.
“Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen,” he said.
British government bond future prices rose and investors further reined in their expectations of a full percentage-point interest rate increase by the BoE next month as Broadbent spoke.
Rate futures put a 17% chance on a 100 basis-point increase on Nov. 3, down from 25% earlier on Thursday. A whole percentage-point rate hike was seen as a near certainty before Truss was forced to backtrack on her unfunded tax cut plans.
Broadbent said in his speech that if government support mitigates the effect of inflation on households – as it is doing with its cap on energy prices – there was a bigger job “at the margin” for monetary policy to do.
There is now uncertainty about the scale of the government’s support plan which new finance minister Jeremy Hunt has scaled back to run for six months, not two years as originally planned by Truss, although targeted support would continue after that.
“We are unlikely to know for a while precisely the form that will take,” Broadbent said.
(Writing by William Schomberg, editing by Andy Bruce)
