As mortgages become more expensive and the economy weakens, the bank’s biggest challenge may be to persuade people that what they are doing to tame inflation is necessary
Save time by listening to our audio articles as you multitaskThe bank’s biggest sigh of relief is over financial stability. After Liz Truss’s package of tax cuts was announced on September 23rd the price of long-term government debt, or gilts, fell sharply; that created havoc for pension funds and for managers of their money. By September 26th bank officials were seeing signs of a vicious spiral of falling asset values forcing asset sales, pushing values down further.
Expectations that rate-setters would respond aggressively to the “mini-budget” helped to send mortgage rates higher. That rise—combined with the insistence of Andrew Bailey, the bank’s governor, that its bond-buying programme would not be extended—turned an economic problem into a political one. Ms Truss reversed most of her tax cuts, scaled back promises of help with energy bills and fell on her sword. Under, the new prime minister, fiscal policy will continue on that tighter path.
The bank faces pressure from all sides. Sanjay Raja of Deutsche Bank says that questions linger among investors about its anti-inflation credentials, particularly since British policymakers have sounded more dovish than those in America and the euro area. If the bank does not raise rates as much as markets expect , that could mean a weaker pound and more imported inflation.
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