However, he said that falling borrowing costs are a sign of improvement. The yield on ten-year bonds dropped from above 4pc to around 3.75pc on Monday as investors became less concerned about the risks of a surge in debt.
Investors are also betting interest rates will peak at a lower level than previously feared because inflation-boosting tax cuts are off the table.
The markets now expect the Bank of England to put rates up to around 4.9pc next year, down from previous forecasts which were as high as 5.25pc.
Fixed rate mortgages – which are based on future predictions of the Bank’s actions – are likely to go up less sharply as a result, in a boost for millions of homeowners.
Sir Dave said: “What we have seen when you look at yields in the gilt market is that credibility is being recovered at least on that benchmark measure, but I think that has to be followed through.”
The Bank of England’s Monetary Policy Committee, which includes Sir Dave and is chaired by the Governor, Andrew Bailey, will next meet on Thursday, November 3. Financial markets expect officials to raise interest rates from 2.25pc to 3pc, the steepest increase since 1992.
In a sign of the crisis ahead, the latest purchasing managers’ index – a key monthly survey of businesses from S&P Global Markets – recorded its lowest reading since the financial crisis, excluding Covid lockdowns.
The score for performance in services and manufacturing was 47.2, where anything below 50 signals contraction.
It was the third monthly drop in a row and suggests GDP is decreasing at a quarterly rate of 0.3pc according to Pantheon Macroeconomics.
Sir Dave said the drop “would be consistent with the economy being in recession”.
