Bank of England will ‘not hesitate’ to raise interest rates amid market turmoil
The Bank of England has intervened to stabilise the bond market after warnings it was becoming “close to untradeable” due to volatility, in the wake of chancellor Kwasi Kwarteng’s mini-Budget, which led the pound to sink to an all-time low.
Threadneedle Street said it wanted to stave off a “material risk to UK financial stability” as it announced a move to temporarily purchase 30-year government bonds after they hit a 20-year high on Wednesday.
Having rallied on Tuesday, the pound fell again slightly this morning as FTSE-100 stocks tumbled to a near 18-month dip after the International Monetary Fund stepped in to urge Mr Kwarteng to “re-evaluate” the tax cuts in his mini-budget.
Former deputy governor of monetary policy at the Bank of England, Sir Charlie Bean, suggested the scale of cuts needed to get the UK’s debt to GDP ratio back on sustainable terms could amount to as much as £50bn a year.
“Frankly, the only way you can really deal with this is with a very fundamental rethinking of the boundaries of the state,” he told Sky News, adding: “You have to be prepared, say, to move away from our own health service, which is free at the point of delivery to one funded by social insurance like they do in Germany.”
Pound slumps 1.5% against dollar
The pound has fallen further in value against the US dollar, slumping 1.5% to $1.0570.
Earlier, the Bank of England announced it would buy government bonds to stabilise the market.
Jane Dalton28 September 2022 12:37
Extraordinary that Bank has to limit Budget damage, says Sturgeon
Scotland’s first minister Nicola Sturgeon said the Commons should be recalled to address the rapidly deteriorating economic crisis.
The SNP leader said the emergency intervention by the Bank to reduce damage from the Truss government’s policies was extraordinary.
Jane Dalton28 September 2022 12:34
Shadow chancellor blames pound crisis on government
Shadow chancellor Rachel Reeves said: “People will be deeply worried about the impact of this turmoil on their mortgage, their pension, and their cost of living.
“This is a crisis made in No 10 and is the direct result of the Tory government’s reckless actions, which include tax cuts for the richest 1%.”
Jane Dalton28 September 2022 12:33
Rayner mocks Truss over pork market
Labour deputy leader Angela Rayner has mocked Liz Truss for having “crashed the pork market”, a nod to the Prime Minister’s enthusiasm for the sector when environment secretary.
In a speech to close the Labour Party conference in Liverpool, Ms Rayner said of the Conservatives: “Tough on crime? They brought crime to No 10.
“Defenders of the free market? The market’s in free-fall. England’s green and pleasant land? Frack it.
“From the party of stability to causing earthquakes. From the party of business, to a slap down from the IMF. From the party of serious government to the party of parties.
“Liz Truss has even crashed the pork market. Now that is a disgrace. You’d think that snouts in the trough was the one thing they could manage.”
Ms Rayner’s speech received warm applause.
Jane Dalton28 September 2022 12:29
Interest rates still likely to rise despite intervention, says former BoE deputy governor
Interest rates are still likely to need to rise despite the Bank of England’s intervention significantly reducing the need for an immediate increase, a former deputy governor has said
“The need for an immediate rate increase is much reduced. It is not going to go away though,” Sir Charlie Bean said. “It is likely that accompanying the fiscal expansion that was announced at the end of last week, the bank will have to significantly raise interest rates.
“The financial stability action today is not going to change the fact that mortgage interest rates will be rising in the future.”
He also told the broadcaster that a rapid market response could be anticipated, following the Bank of England’s announcement, saying: “Merely the fact of the bank standing ready to purchase UK government bonds automatically helps to stabilise the market, and I have to say this is clearly the right thing to do.”
Jane Dalton28 September 2022 12:17
Senior Tories try to blame Labour for market turmoil
Former Tory MEP Daniel Hannan has claimed that the turmoil in the market is partly down to the fact that traders fear a “Labour victory” at the next general election.
Tory donor Lord Ashcroft made the same claim, saying the currency self-off was down to concerns “that Labour could form the next government”.
New Labour-era spin doctor Alastair Campbell claimed Tory spinners were “trying to get the line running that the run on the £ is all Labour’s fault”.
Adam Forrest28 September 2022 12:14
‘Financial crisis territory’: Reaction to Bank of England intervention
Here is some of the immediate reaction to the Bank of England’s emergency intervention in the gilt market.
The FT’s economics editor Chris Giles suggests that the UK is “now financial crisis territory”.
Global’s Lewis Goodall says it is “extraordinary” that such a move is in response to the government’s mini-budget.
David Henig, of the European Centre for International Political Economy think-tank, suggests that the Bank of England is “trying to tell the government a change of course is needed”.
Andy Gregory28 September 2022 12:11
Some relief in markets after Bank of England intervention
The markets appear to have reacted with some relief to the Bank of England’s intervention.
The yield – or interest rate – on the 30-year bonds which the bank announced it would temporarily purchase fell from their 20-year high of 5 per cent, back to 4.35 per cent.
The pound, meanwhile, strengthened slightly against the dollar, rising back to $1.07, just shy of the $1.08 figure it remained at for much of Tuesday.
Andy Gregory28 September 2022 11:54
Bank of England’s intervention in bond market ‘fully indemnified by HM Treasury’
The government will continue to “work closely” with the Bank of England, the Treasury has said, after the bank announced an emergency intervention to stabilise the bond market.
The move “has been fully indemnified by HM Treasury”, it said, adding that the bank’s purchases of long-term UK government bonds “will be strictly time-limited, and completed in the next two weeks”.
The Treasury said: “Global financial markets have seen significant volatility in recent days. The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK government bonds from today in order to restore orderly market conditions.
“These purchases will be strictly time-limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury.
“The chancellor is committed to the Bank of England’s independence. The government will continue to work closely with the Bank in support of its financial stability and inflation objectives.”
Andy Gregory28 September 2022 11:37
Bank of England says intervention in bond market will stave off ‘material risk to UK financial stability’
Announcing its intervention in the bond market, the Bank of England said it wanted to stave off a “material risk to UK financial stability”.
In its statement, the central bank said it was “monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets”, adding: “This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt.
“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
The bank said its move to temporarily purchase long-dated UK government bonds “will be carried out on whatever scale is necessary to effect this outcome”.
Andy Gregory28 September 2022 11:33