In Britain, expectations have increased that the next government will halt its interest rate hike in the wake of the resignation of Prime Minister Liz Terrace on the impact of the failed economic plan that in earlier he overthrew the finance minister and was forced to retract him days ago after it caused havoc in the markets.
Bank of England Deputy Governor Ben Broadbent said he was unsure what interest rates were in Britain were to rise as much as investors expected and warned that the UK economy would take a hit if rates were raised to the levels currently being talked about.
Broadbent claimed in a speech Thursday that while “the logic of policy tightening is clear” in the face of rising inflation, demand will still slow down in somehow with rising prices. He said that if prices follow the current path, it could hurt GDP by 5%.
The comments suggest caution in the BoE about the speed at which monetary policy is tightened with the growing risks that Britain has already slipped in recession.
Investors now expect interest rates to rise above 5% in 2023, up from 2.25% now.
A report released by Bloomberg and seen by Al Arabiya Net states that these expectations among investors on interest rates have declined in the wake of Broadbent’s speech.
According to Bloomberg, current expectations indicate that the Bank of England may be content to raise interest rates by 75 basis points next month.
“If the bank rate were to really go to 5%, reasonable monetary policy multiples, the cumulative effect on GDP for the entire hiking cycle would be just under 5% and only a quarter of it was actually achieved.” Broadbent said.
“The MPC is likely to respond in relatively quickly to news on fiscal policy, “Broadbent said.
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