Pound run: BoE chief economist signals 'significant monetary response'

Bank of England. Photo: Tejas Sandhu/SOPA Images/LightRocket via Getty
Bank of England. Photo: Tejas Sandhu/SOPA Images/LightRocket via Getty

Bank of England (BoE) chief economist Huw Pill has hinted at a "significant" monetary policy response to come in November to shore up the pound.

The chief economist at the central bank has said that it is hard not to draw the conclusion that recent market uncertainty will require "a significant monetary response."

"It is hard not to draw the conclusion that all this will require significant monetary policy response," he told a conference. "We must be confident in the stability of the UK’s economic framework."

Read more: How a sinking pound will inflate mortgage debt for millions

Pill also acknowledged the recent plunging of the pound and said the Monetary Policy Committee (MPC) "cannot be indifferent" to the repricing of financial assets seen in the last few days.

"We have all seen recent significant fiscal news in the past few days. That has had significant market consequences as well as significant implications for the macro outlook," he added.

Speaking at the CEPR-Barclays International Monetary Policy forum, he reassured listeners the MPC’s commitment to bringing inflation back down to its 2% target is unwavering.

Read more: Why has the pound fallen and what does this mean for you?

Sterling has pushed slightly higher following the chief economist's comments on Tuesday, up 0.8% against the dollar at around $1.07, although it remains off its highs for the day.

While Pill hinted at aggressive monetary policy tightening by Threadneedle Street, he pushed back against calls for emergency action.

"The better way to run monetary policy is to adopt a more considered approach and low-frequency approach," he said.

The speech comes a day after the pound plunged to historic lows in response to Kwasi Kwarteng's tax-cutting mini-budget, forcing the chancellor and the BoE to move to reassure markets.

Read more: Bank of England rules out emergency interest rates meeting

On Monday, the central bank opted not to hold an emergency rates meeting to help prop up the pound.

But the central bank said it "will not hesitate" to raise interest rates to get inflation under control. Inflation was running at 9.9% in August, nearly five times the Bank's 2% target.

Bank governor Andrew Bailey said the Monetary Policy Committee, which sets rates, would assess the impact on inflation and the fall in sterling at its next meeting in November, and then "act accordingly".

Threadneedle Street has already raised rates seven times in a row since December to the highest rate in 14 years to bring 40-year high inflation back to its 2% target.

Read more: Pound edges up against dollar but outlook still gloomy

Pill also said the UK energy support package avoids "extreme peaks" in inflation and "frees monetary policy to do its job" of tackling prices in the medium term. "That freedom will have to be used”, he says, suggesting higher rates are on the way."

The government announced an energy support package that freezes bills at £2,500 a year from October for two years, and a six-month energy support scheme for businesses, costing £60bn in the first six months.

Watch: How does inflation affect interest rates?