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Bank of England backs away from emergency steps to prop up the pound

The Bank of England today backed away from emergency steps to prop up the value of the tumbling pound but said it would not hesitate to raise interest rates to bring inflation back under control.

The BoE is monitoring developments in financial markets “very closely” and will raise interest rates as necessary to return inflation to the two percent target, Governor Andrew Bailey said in a statement.

The U.K. Treasury — under fire for a tax-cutting fiscal plan unveiled Friday — also sought to calm jitters by promising more detail in the coming weeks in its own statement.

The twin statements come after the pound hit an all-time low against the U.S. dollar and investors dropped U.K. government bonds as investors doubted Downing Street’s new fiscal plans.

“As the [Monetary Policy Committee] has made clear, it 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,” Bailey said. “The MPC will not hesitate to change interest rates by as much as needed.”

The pound slipped further on the announcement, after regaining ground on speculation the BoE might raise rates as soon as today. It was down 1.2 percent at $1.0719.

U.K. Chancellor Kwasi Kwarteng attempted to calm markets by pledging to set out a “medium-term fiscal plan” on November 23, amid investor concerns over his proposals for debt-financed tax cuts at a time when interest rates are on the rise.

“The Fiscal Plan will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term,” the Treasury said in a statement.

That will include a full forecast from the U.K.’s independent Office for Budget Responsibility — which was controversially not consulted on Friday’s mini-budget.

“I welcome the government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances,” Bailey said.

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