© Reuters. FILE PHOTO: A general view of the Bank of England (BoE) building, the BoE confirmed to raise interest rates to 1.75%, in London, Britain, August 4, 2022. REUTERS/Maja Smiejkowska
LONDON (Reuters) – Britain’s central bank needs to make a big inter-meeting interest rate hike as early as next week to calm markets and restore credibility, a Deutsche Bank (ETR:) analyst said on Friday.
British bond yields surged by the most in a single day in more than three decades on Friday and the pound slid 3% to a new 37-year low after UK finance minister Kwasi Kwarteng laid out a series of major tax cuts that will be funded by public borrowing.
In a research note, Deutsche Bank’s George Saravelos said the required policy response was clear: “A large, inter-meeting rate hike from the Bank of England as soon as next week to regain credibility with the market.”
A decision by the BoE to reverse its planned sale of UK government bonds would make matters worse, he said.
He added that a strong signal by the BoE that it was willing to do “whatever it takes” to bring inflation down quickly and move real yields into positive territory would help.