The biggest rise in the interest rate for 30 years has come with a doveish cooing from the Bank of England.
Interest rates rose to 3% yesterday, after the bank’s monetary policy committee agreed on a rise of 75 basis points.
The bank is predicting a two-year recession, a doubling in unemployment and deflation – but many say this is a worse-case scenario that will not actually happen.
Governor Andrew Bailey suggested markets had overcooked their predictions of future rises, and said lenders needed to reflect this in their mortgage pricing.
He indicated that interest rates should in fact stay closer to 3%, leading to a less apocalyptic scenario.
Yields on gilts may have settled back at pre-mini-Budget levels, but liquidity in the market has taken a huge hit.
Sir Dave Ramsden, the bank’s deputy governor in charge of markets, said financial conditions were still volatile as the government and central bank aim to regain credibility with investors. “It is clear that markets remain febrile. There is illiquidity and things have not settled down yet,” he said.
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