The Bank of England has said it “will not hesitate” to raise interest rates after a day of turmoil on the markets.
The plunging value of sterling, caused by the market’s response to the government’s mini-Budget last week, has already led some lenders to withdraw fixed-rate property loans.
The bank ruled out an emergency rate rise yesterday. The next interest rate decision is scheduled for 3 November, with economists forecasting that rates will rise from 2.25% at present to as much as 6% next year.
The chancellor has said he will set out his fiscal rules in November, before a full Budget in the spring. His tax giveaway announced in the mini-Budget is to be funded by an additional £70bn borrowing.
The government’s own cost of borrowing has leapt higher than in any month since 1979 as gilt yields widened.
Some ministers are warning that the Conservative Party face a “world of pain” if voters blame it for soaring mortgage costs.
Labour has surged to a 17 point lead over the Tories, according to a YouGov poll.
