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Bank ‘should hold emergency meeting’ amid the threat of a further pound plunge

The Bank of England should consider holding an emergency meeting and look to act “promptly and forcefully” on interest rates to head off the threat of a further run on the pound, its former deputy governor has warned. (PA Archive)
The Bank of England should consider holding an emergency meeting and look to act “promptly and forcefully” on interest rates to head off the threat of a further run on the pound, its former deputy governor has warned. (PA Archive)

The Bank of England should consider holding an emergency meeting and look to act “promptly and forcefully” on interest rates to head off the threat of a further run on the pound, its former deputy governor has warned.

Sir Charlie Bean – who was deputy governor for monetary policy throughout the financial crisis – told the PA news agency the Bank may need to raise interest rates by as much as 1% before its November meeting amid a “material risk” of another slide lower for the pound.

Sterling briefly hit an all-time low of 1.03 US dollars on Monday as market confidence in the Government’s economic policies was hammered following last Friday’s mini-budget.

It's all very well to say they will act forcefully if necessary, but at the end of the day, it's actions, not words, that matter

Sir Charlie Bean, former Bank deputy governor

Sir Charlie said it was “actions, not words” that were needed to calm uncertainty in financial markets and said the statement made late on Monday by the Bank that it was “monitoring” the situation with the pound may not be enough.

The former deputy governor, who is also a recently-retired member of Britain’s fiscal watchdog, said there was a risk of a “snowball or spiral” setting in with the pound and UK government bond markets, which have also taken a battering since the Chancellor’s mini-budget last Friday.

He said: “I do see a material risk that the longer the situation of uncertainty about how the pubic finances will be made to hang together and be sustainable persists, that may force the Bank’s hand.

“It’s (an emergency meeting) something policymakers should seriously have on their radar.”

He added that lessons from past currency and sovereign debt crisis have taught policymakers that “the key is to act promptly and forcefully”.

The Bank said on Monday it would “not hesitate to change interest rates by as much as needed”, but signalled it would not be rushed into an emergency decision before its scheduled November meeting, when it will also have its next set of forecasts to hand.

Sir Charlie, who also a professor at the London School of Economics, said: “It’s all very well to say they will act forcefully if necessary, but at the end of the day, it’s actions, not words, that matter.”

He also cautioned that it now costs the UK more to borrow than Italy or Greece.

Sir Charlie said: “When you have a falling currency and rising sovereign bond yields, this is exactly what we see with a typical emerging market sovereign debt crisis.

“That’s not to say we’re becoming an emerging market, but the fact is we have gone from looking like the US or Germany in terms of bond rates to now being closer to Italy and Greece.”

Sir Charlie, who retired from the Office for Budget Responsibility (OBR) at the end of last year, criticised the Government for pressing ahead with its mini-budget measures and permanent tax cuts without a plan to put the UK’s public finances on a sustainable path or allowing it to be scrutinised by the OBR.

He said it was “remarkable” that Chancellor Kwasi Kwarteng and Prime Minister Liz Trust “did not think about what the likely market reaction would be”.

“The mini-budget didn’t meet the test of being coherent and credible to investors and that’s where it’s come unstuck,” he said.