Huw Pill said a tough fiscal settlement from the chancellor could weigh on the British economy more than the central bank predicts, in a development that will force it to review its approach to setting interest rates. Asked at an online event if there was a risk that higher interest rates from the Bank, along with big tax rises and spending cuts, would weigh on the economy at a much faster rate than desired to tackle rising inflation, he said: “There is a risk of that. . But it’s a risk we’re very much alive to.” Pill said the central bank will take its long-awaited debt-cutting plan into account when it sets borrowing costs in December, and if Hunt’s interventions are bigger than forecast, then Threadneedle Street would likely “put rates a bit lower” than whatever else. be the case. Speaking at the event organized by the Bank, Pill suggested that large tax increases could “slow down spending in the economy more than we expect”. This could in turn have an impact on inflation. “What would we do? Well, other things being equal, relative to where it would be different, we would set interest rates a little lower. We’re accelerating the economy, boosting spending through monetary policy to offset that effect,” he said. The Guardian understands Hunt is preparing to announce tax rises and spending cuts totaling £60bn in the Autumn Statement as Rishi Sunak’s government tries to restore investor confidence in Britain after Liz Truss’ failed mini-budget. The chancellor is considering cuts of at least £35bn. The Financial Times reported on Monday that Hunt could use a secret raid on inheritance tax to help plug the hole in public finances. Pill said fiscal policy – taxation and spending – was only in the hands of the government and he was unable to comment on what changes were right or wrong to make. But he said it was important for the central bank to take note of the changes made by the government and that they would have an impact on its rate-setting plans. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. “The crucial thing is that we will have another meeting in December. We meet every six weeks. And so at that meeting in December we will be able to take into account what the government has done,” he said. Last week the Bank raised interest rates by 0.75 percentage points to 3%, the biggest single rise in borrowing costs since 1989, despite warning that Britain was at risk of slipping into its worst recession in 100 years.
