As if the Bank of England didn’t have enough to worry about, they will now have to keep a keen eye on the race to replace Boris Johnson as Tory leader and prime minister.
This does not constitute advice and advice should be sought in all instances before acting on it.
Normally, the BoE doesn’t pay too much attention to the swings and roundabouts of politics, but the recent political unrest which caused the mass exodus of over 50 MPs isn’t just another day at the office. With inflation close to hitting double digits the Bank of England is under immense pressure to kerb that trend by increasing interest rates.
Prior to the dramatic exit of dozens of politicians, Johnson and Rishi Sunak were set to hold a press conference detailing how the government’s tax and spending policies would play out the rest of the year. It appears that Sunak and Johnson could just not agree on the way forward with Sunak unable to support increased spending on defence and welfare without tax rises.
Suank put forth that any spending increases would be deemed by the Bank of England as inflationary and as a result, borrowing costs would rise even more than previously estimated.
Now this debate will take place between rival candidates vying for Johnson’s old spot.
The Bank of England is testing a new, more flexible policy that might result in bigger jumps in interest rates.The Bank’s chief economist, Huw Pill, said, “The MPC is committed to returning inflation to target in a sustainable way over the medium term. In the first instance, that has required – and still requires – tighter monetary policy.”
Furthermore, Pill stated that he was concerned about the growth of the economy slowing down and the possibility of a contraction which would push him to consider pausing or even cutting rates. It’s a delicate balancing act — any tightening must be measured and appropriate for the economy.
So much still hinges on the plans of the new Tory leader. Without a robust plan to build sustainable growth, the pound might fall even further, pressurising the Bank of England to keep raising rates. Only time will tell how we’ll move forward, so be sure to stay abreast of all developments and get in touch with your financial adviser to safeguard your finances in the future.