The Bank of England's chief economist, Hugh Bell, said on Wednesday that he is more skeptical about market expectations that the bank will raise interest rates four times, by 25 basis points each time, over the next year.
Bill, who voted in favor of raising interest rates, said during an event organized by Citi on the sidelines of the semi-annual meetings of the International Monetary Fund in Bangkok: “Is it clear that we will need to move and match market expectations by raising interest rates four times, by 25 basis points each time?” In this regard, I would be a little more skeptical,” according to Reuters.
He added: “I think it is important that we put ourselves in the right position, and we still have some work to do to achieve that. I think this is becoming increasingly clear now. But is 4 interest rate hikes over the next year appropriate?
Bell and two other members of the Monetary Policy Committee had voted in favor of raising interest rates in September, while the majority of committee members, including Governor Andrew Bailey, preferred to keep them unchanged, awaiting clearer indications about the impact of the war in Iran on inflation.
On Tuesday, Bailey reiterated his view that the pressures caused by the energy price shock on broader inflation in Britain have so far remained limited, but he added: “The longer this situation lasts, the more difficult things will become.”
The Financial Times reported on Wednesday that British Finance Minister John Healey expects to finance the new measures contained in this month's budget, including a package to support the costs of living, by increasing taxes or reducing spending, rather than resorting to more borrowing.
Haley is scheduled to present his first annual budget on October 28, provided that, according to the newspaper, it will achieve a positive outcome in its financial budget for the year 2029-2030, which is the last year of the parliamentary session, which means that the estimated increases in spending will be fully covered through corresponding financing measures. The newspaper quoted this from sources familiar with the budget preparations.
The fiscal rules that the government has set for itself stipulate that current spending be financed from tax revenues, while reducing public debt as a proportion of GDP.
Britain recorded a budget deficit of 4.4 percent of GDP last year, according to Reuters.
The report added that the war with Iran imposed additional pressure on British public finances, and reduced the margin of maneuver available to Haley after meeting the financial rules.
The Minister of Finance is expected to maintain this financial margin as an “emergency fund” that can be used during periods of economic stress, according to the newspaper.
The Financial Times quoted one of those familiar with the budget preparations as saying: “This will be a way for the Treasury Secretary to demonstrate his commitment to fiscal responsibility.”
In addition to an aid package directed at reducing rising heating bills during the winter, Haley is expected to back down from plans to increase the fuel tax by 3 pence per liter next January, and 2 pence next March, according to the report.
A Treasury spokesman said in a statement: “The Treasury Secretary clearly stated that financial discipline forms the basis of every pledge this government makes, and therefore he and the Prime Minister fully agree on adhering to the financial rules.”
He added: “His focus is on supporting British jobs, giving families and businesses a financial breathing space, and driving growth across the country.”
This week, the International Monetary Fund supported the British fiscal strategy, calling on London to “continue with the current approach,” instead of accelerating the pace of deficit reduction.
This comes at a time when British policy differs from the policies of other major economies that do not have clear plans, or no plans at all, to reduce borrowing, in conjunction with rising interest rates.
The Governor of the Turkish Central Bank, Fatih Kara Khan, said on Wednesday that the bank will continue to follow a tight monetary policy until price stability is achieved, stressing that monetary decisions will remain linked to inflation developments and prospects.
Kara Khan explained, during a presentation on monetary policy in Turkey and macroeconomic expectations, on the sidelines of his visit to Bangkok to participate in a meeting of the World Bank, that core inflation continues to decline despite the rise in energy prices, while weak demand contributes to reducing inflationary pressures resulting from supply shocks, according to Reuters.
He pointed out that proactive measures help contain the potential risks of the repercussions of trade restrictions, pointing to the continued strength of demand for the Turkish lira in light of the tight monetary policy.
He added that continuing the tight monetary policy will enhance the reduction of inflation through demand, exchange rate and expectations channels. He explained that the Monetary Policy Committee will determine the base interest rate based on the actual and expected inflation rates and their trends, provided that decisions are taken in a thoughtful manner at each meeting, with monetary policy tightening if inflation expectations deviate significantly from the interim goals.
