Markets warn sterling slump could lead UK interest rates to triple by next year

theguardian.com:

The plummeting value of the pound has sent the interest rate on government debts to a 12-year high, with money markets now predicting the Bank of England base rate could almost treble to 6% next year.

Sterling tumbled to an all-time low of $1.03 against the dollar overnight before recovering to $1.07 in morning trading as traders priced in forecasts of a major intervention from Threadneedle Street to support the currency.

Traders expect the central bank to convene a meeting of its monetary policy committee (MPC) soon to hike interest rates from 2.25% to 3% before increasing them further at a scheduled meeting in November.

One analyst described the situation as “toxic”, while another said investors had digested the implications of Friday’s mini-budget, which stacked a further £45bn of unfunded tax cuts on top of an estimated £150bn bill for its energy price bailout scheme, and “seemed inclined to regard the UK Conservative party as a doomsday cult”.

A further rout of the British currency could take it below parity with the dollar and into uncharted territory on international exchanges.

It is understood the MPC, chaired by the Bank’s governor, Andrew Bailey, will be reluctant to intervene when the defence of the currency is not among its responsibilities, instead focusing on its target of bringing down inflation to 2% over the next two to three years, from 9.9% in August.

However, several MPC members have highlighted the fact that a drop in the value of the pound can fuel inflation via the higher cost of imported goods and raw materials.

A rise in interest rates, if it shores up the value of sterling, could limit the pressure on inflation, though traders may interpret an emergency rise as a signal of panic at the Bank, prompting