Andrew Bailey, governor of the Bank of England, at a press conference last month. Photo: Yui Mok-WPA Pool/Getty Images
Britain's central bank issued a rare statement on Monday that failed to stem its currency freefall, as the U.K. government's tax-slashing proposals continue to spark turmoil across financial markets.
What they're saying: The Bank of England "will not hesitate to change interest rates as necessary to return inflation to the 2% target sustainably in the medium term," the statement reads.
- The central bank is watching developments in financial markets and "will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government's announcements, and the fall in sterling, and act accordingly."
- The announcement falls short of what some economists and market-watchers began calling for in recent days: an emergency rate hike.
Why it matters: There are concerns the U.K.'s tax-cutting spree is fiscally unsustainable, may stoke already-soaring inflation, and could require an even tighter monetary policy.
- The result is an unusual (and worrying) combination of market moves for a country like the U.K. The pound plummeted to an all-time low against the dollar, while government yields saw some of the biggest spikes on record.
The latest: The Bank of England's statement didn't stop the pound's free fall.
- In early trading on Monday, the pound crashed. At its lows, it took $1.03 to buy one pound. After regaining some ground earlier, it slid again after the statement's release.
- Big action, too, came in the bond market. For a sense of the stunning rise in borrowing costs, consider this: On Thursday, before the government unveiled its proposals, the yield on the U.K.'s benchmark five-year bond hovered near 3.58%. Now, as of noon EDT, it's sitting at 4.54%.