London Daily

Focus on the big picture.
Thursday, Oct 15, 2026

Bank will 'not hesitate' to raise interest rates after pound's fall

Bank will 'not hesitate' to raise interest rates after pound's fall

The Bank of England has said it will "not hesitate" to hike interest rates to curb inflation after the pound fell to a record low against the US dollar.

The Bank said it was "monitoring developments closely" and would make a decision on any action in November.

Its statement came after the Treasury said it would publish a plan to tackle debt in a bid to reassure investors.

The pound fell again after the two statements and some UK lenders said they were halting new mortgage deals.

Halifax, the UK's largest mortgage lender, said it would temporarily withdraw all mortgage products that come with a fee due to the market volatility.

Virgin Money and Skipton Building Society have also stopped offering mortgage products to new customers.

Experts said a rise in the cost of long-term borrowing due to the market turmoil meant the cost to lenders of offering new mortgage deals was too expensive.

Sterling fell to an all-time low earlier against the US dollar after Chancellor Kwasi Kwarteng pledged further tax cuts at the weekend on top of Friday's mini-budget where he announced the biggest tax cuts in 50 years.

The pound had been sliding as global markets reacted to the sharp increase in government borrowing required to fund the cuts.

A weak pound makes it more expensive to buy imported goods and risks pushing up the rising cost of living even further. Imports of commodities priced in dollars, including oil and gas, are also more expensive.

UK inflation, the rate at which prices rise, is already rising at its fastest rate for 40 years.

Some economists had predicted the Bank of England would call an emergency meeting in the coming days to raise interest rates in a bid to stem the fall, as well as calming rising prices.

But the Bank of England instead said it was "monitoring developments in financial markets very closely" and would make a full assessment at its next meeting on 3 November.

Investors are now predicting that interest rates could more than double by next spring to 5.8% from their current 2.25%, to curb high inflation, which is expected to be fuelled by the huge tax cuts announced in Friday's mini-budget.


'Not affordable'


Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said if interest rates rise as predicted, the average household refinancing a two-year fixed rate mortgage in the first half of next year would see monthly payments jump to £1,490 from £863.

"Many simply won't be able to afford this," he said.

The market volatility following Mr Kwarteng's mini-budget has also been linked in part to the government's decision not to publish a forecast of expected UK growth and government borrowing from independent forecaster the Office for Budget Responsibility.

Martin Weale, Professor of Economics at King's College London and former member of the Bank of England's Monetary Policy Committee, which votes on interest rates, told BBC Radio 4's PM programme that people "are concerned that the government has no plan for bringing the national debt under control."

"Sterling has fallen because market traders have been frightened by the government's policies, and I think they got further frightened by the sense over the weekend that this was only the first instalment of some tax cuts."

But Lord David Frost, Conservative peer and former chief Brexit negotiator, said the reaction on global markets was "an overreaction".

"I don't think anything has gone wrong, actually, Liz Truss promised change, a different economic approach to get us back to growth and away from stagnation."

He said as part of this change in approach, interest rates would rise and the government would need to provide additional support via tax cuts and whilst it would need to reduce spending medium term, the details of that would come in November.

The government said its financial plan set for 23 November would include full growth and borrowing forecasts from the Office for Budget Responsibility.

It also pledged to set out further details on the government's spending rules, including how it will try to decrease debt.

Paul Dales, chief UK economist at Capital Economics, said given the pound had fallen back since the statements from the Bank and the Treasury the markets "may well need more reassurance and some actual action", saying a change in policy from government or an interest rate hike from the Bank at an emergency meeting before 3 November may be necessary.

Newsletter

Related Articles

0:00
0:00
Close
MI5 Warns of Growing Russian Sabotage and Espionage Threats Across Britain
UK Prime Minister Andy Burnham Plans Brussels Talks to Renegotiate Post-Brexit Trade Deal
MI5 Warns of Rising Russian and Iranian Sabotage Threats to British Military Facilities
UK Prime Minister Andy Burnham Pledges Closer EU Ties as MI5 Reveals Russian Brexit Interference
UK Orders Security Review Following Reported Killing of Former Politician Ann Widdecombe
UK Prime Minister Andy Burnham Meets German Chancellor Merz to Strengthen European Security Ties
Nearly 100,000 NHS Patients Treated in Hospital Corridors as England Braces for Winter Pressures
UK Government Rejects US-Russia Diesel Agreement and Reaffirms Sanctions Against Moscow
UK and Germany Agree to Deepen Security and Economic Cooperation Following Berlin Talks
British Prime Minister Burnham Pledges Closer EU Ties During Visit to Germany
UK Announces New Sanctions on 17 Russia-Linked Entities During Foreign Secretary's Ukraine Visit
UK and Germany Finalize Kensington Treaty to Strengthen Defense and Technology Cooperation
Britain Maintains Diplomatic Mission in East Jerusalem Despite Israeli Closure Deadline
English Councils Push Government to Rethink Proposed Funding Cuts
Scottish Homebuilding Falls to Lowest Level in 11 Years
BBC Chief Matt Brittin Defends Restructuring as Staff Challenge Job Cuts
UK Finance Warns High Energy Costs and Bond Yields Are Complicating Fiscal Outlook
UK Adopts All 44 Recommendations on Regulating AI in Healthcare
Chancellor John Healey Prepares Autumn Budget as Borrowing Costs Strain Public Finances
UK Investigators See Strong Indications of Iranian Link After RAF Fairford Security Operation
Laura Trott Pledges Tighter Controls on Political Activism in UK Classrooms
Welsh Ministers Launch Long-Term Review of North Wales and Anglesey Crossings
Welsh Government Orders 18-Month Study of Road Solutions Around Newport
Reform UK MP Sarah Pochin Faces Scrutiny Over £800,000 Second Home Purchase
British Households Grow More Concerned About Fuel and Energy Prices
NHS Leaders Warn of Rising Winter Pressure on Emergency Departments
Kemi Badenoch Proposes £2.3 Billion Employer National Insurance Cut for Young Workers
Middle East Conflict Could Erase UK Fiscal Headroom, Economists Warn
Manchester City Found Guilty of Multiple Premier League Financial Rule Breaches
UK Security Services Find Strong Indications of Iranian Role in RAF Fairford Incident
Costa Coffee Returns to Operating Profit on Iced Drinks and Menu Changes
Asos Warns Customers After Unauthorized Access to Retail App and Data
Kemi Badenoch Puts Growth and Deregulation at Center of Conservative Conference
Campaigners Warn of Deepening Social Care Crisis for Disabled Adults
Study Finds Rising Early-Onset Cancer Rates Among Adults Under 50 in Britain
UK Coach Operators Warn High Diesel Prices Could Force Route Cuts
FCA Opens Independent Review Into Handling of Epstein-Linked Whistleblower Case
Argentina Vows to Block Falkland Islands Offshore Oil Development
UK Chancellor Prepares Fiscal Measures and Welfare Reforms Ahead of Autumn Budget
Sainsbury’s and Morrisons Explore Potential Multi-Billion-Pound Merger
UK Weighs Tariffs on Chinese Electric Vehicles to Align With European Union
UK Threatens Diplomatic Expulsions Over Planned Closure of East Jerusalem Consulate
UK Energy Price Cap Hits Three-Year High as Middle East Conflict Raises Costs
Seventh Arrest Made in Suspected Terror Plot at RAF Fairford
Systemic Education Collapse Sparks Mass Student Uprisings in France
Green Party Faces Backlash Over Resolution Equating Zionism With Racism
Conservatives Debate Scrapping Environmental Rules for New Homes
Cornwall Insight Warns UK Energy Bills Could Approach £2,000 This Winter
UK Coach Operators Warn of Service Cuts as Diesel Prices Exceed £2
Scottish Parliament Approves £68 Billion Budget With New Tax and Property Measures
×