BoE's Broadbent says market bets on rate hikes would hit economy

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Bank of England Deputy Governor Ben Broadbent told investors on Thursday that the big increases in interest rates they had been pricing on the back of Prime Minister Liz Truss's fiscal plans would deliver a 'pretty material' hit to the economy.

A general view of the Bank of England building in London, Britain, August 4, 2022. REUTERS/Maja Smiejkowska

In a speech, Broadbent said it was now unclear how much the government's energy price cap plan will add to inflation pressure in the medium term after the scheme was drastically scaled back by new finance minister Jeremy Hunt. Despite falling in recent days, the expectations financial markets for the BoE's Bank Rate to peak at about 5.25% was "by some distance the largest rise in market interest rates between MPC forecasts since the Committee was founded," Broadbent said.

Investors further reined in their expectations of a full percentage-point interest rate increase by the BoE next month and British government bond future prices rose as Broadbent spoke.

 

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