Liz Truss maintained she had the ‘correct approach’ to heal Britain’s economy today as she attempted to restore City confidence after last week’s emergency budget.
In BBC local news interviews this morning, the Prime Minister was shown instances of the possible suffering confronting millions. She stressed she would not change course from pledges to reduce taxes and raise borrowing by billions.
It follows a week in which the pound fell to its lowest level in decades versus the dollar, mortgage rates and availability fell, and the Bank of England pumped £45billion into the bond market to preserve pensions.
To soothe anxious markets, ministers are planning billions of pounds in budget cutbacks.
Ms. Truss told BBC Radio Leeds that her ideas would put the county ‘on a better trajectory for the long term,’ but not overnight.
‘We needed to move quickly to develop the economy, get Britain going, and combat inflation,’ she added.
As Prime Minister, I’m prepared to make contentious and tough choices.
She told BBC Radio Norwich, ‘This is the appropriate idea.’
She told BBC Radio Nottingham: ‘It’s not fair to have a recession… It’s not fair to have fewer employment due to high taxes.
The pound was 1.0775 dollars at 9am, down from 1.0830 dollars at the previous close, as gilt yields rose further after the Bank of England’s intervention.
Allies said she won’t vary from Kwasi Kwarteng’s mini-Budget before her appearances.
His plan to eliminate the 45p top rate of income tax and lower other levies like corporate tax and national insurance while increasing UK borrowing spurred demands for him to resign or be replaced.
Ms Truss reportedly ruled out firing him less than a month into his appointment or making financial compromises.
Another supporter told Politico, ‘Those who gain from the existing quo will fight hard.’ If the government always did what the markets wanted, nothing would change.
Treasury Chief Secretary Chris Philp warned last night that November measures to slash expenditure may involve reneging on ex-chancellor Rishi Sunak’s vow to boost benefits with inflation.
He disputed the present economic problem this morning.
Former BoE governor Mark Carney criticized Mr Kwarteng for ‘undercutting the UK’s financial institutions’ after his ‘partial budget’ drove the pound plunging.
Mr. Carney said Friday’s mini-budget arrived ‘without the normal projection’ and warned the public would pay.
Several lenders have removed hundreds of mortgage packages amid worries the BoE may boost interest rates to 6% to fight the falling pound.
The institution was compelled to act yesterday and said it would purchase long-term government debt to calm market volatility threatening a financial disaster.
Mr. Carney remarked on BBC Radio 4’s Today Programme, ‘There’s a limit to unfunded expenditure and unfunded tax cuts in this climate, and the price of those is significantly higher borrowing rates for the government, mortgage holders, and borrowers up and down the nation.’
UN Special Envoy on Climate Action and Finance Mark Carney accused Liz Truss’s administration of working against the country’s financial institutions by failing to present a detailed, costed budget.
The Bank of England said yesterday that it will be buying gilts in reaction to the’significant repricing of UK and global financial assets’ after Kwasi Kwarteng’s mini-Budget statement on Friday.
The unusual action was prompted by worries that institutions would have collapsed within hours, endangering the whole system.
Andrew Griffith, city minister, called the package ‘the correct approach… to make our economy competitive.
Cabinet members informally expressed concerns to Kwarteng over the tax changes.
A member of Ms Truss’ new cabinet told The Times that the government got the timing wrong by proposing cutbacks and expenditure changes when inflation is so high, adding that the ‘judgment is still out’ on whether the PM can sell the measures with a’strong narrative and vision’
Former minister Julian Smith and Northern Ireland select committee chairman Simon Hoare are advocating for revisions to the economic strategy.
Despite Tory worries, Downing Street and the Treasury believe there will be no policy shift.
Mr. Griffith disputed that last week’s mini-Budget caused the pound’s collapse and turmoil in the UK bond market, which drove pension funds to the verge.
“All developed markets have suffered unparalleled volatility,” he remarked.
The Treasury said that government departments would be challenged to find billions of pounds in savings to assist persuade investors that policymakers are serious about controlling the UK’s debts.
The Treasury may potentially cut the UK’s huge welfare spending to save money. Ministers will speed up’supply side reforms’ to decrease regulation and enhance economy.
A Downing Street source expressed anger at the market response, stating 90% of previous interventions’ cost came from freezing energy costs for individuals and companies.
The actions followed a Bank of England intervention to purchase UK Government debt ‘on whatever scale is required’ to restore calm as market instability endangered final salary pension plans.
Borrowers may have to show they can pay 7% interest rates to receive a mortgage offer as lenders take offers from sale during the uncertain market.
The base rate is predicted to peak at 5.5% next spring, which would affect prospective homeowners since banks must evaluate whether borrowers can afford a mortgage at 1% over future forecasts.
Borrowers must verify they can afford 6.5 or 7% mortgage rates.
At 7% interest, a £200,000 30-year mortgage would cost £1,331, or £2,661 for £400,000.
They were under pressure from soaring gilts and a falling pound. Sky News said that authorities saw a ‘dynamic run’ akin to when Northern Rock fell at the outset of the financial crisis.
Some were reportedly soliciting money to pay obligations. The Bank’s move boosts demand for gilts and their prices, which lowers interest rates.
The Bank noted, “This repricing has grown more substantial in the last day, and it affects long-dated UK government debt.” Continued market dysfunction would threaten UK financial stability.
This would tighten lending conditions and reduce credit to the actual economy.
It acted on the fourth day of instability, which saw the pound reach historic lows below $1.04 and a major sell-off in government bonds as the crisis spilled into the real economy.
The Bank of England plans to purchase up to £65bn in long-term bonds by mid-October, but it might buy more depending on’market circumstances’
The pound rose to $1.0915 Tuesday night after plummeting to near-record lows.
As interest rates climb and mortgage arrangements dry up, analysts say housing values might plummet 10 to 15% next year.
Yesterday’s market upheaval split Conservative MPs.
Sir Iain Duncan Smith: ‘The administration has to explain the significant supply side measures as soon as feasible to calm absurd rhetoric.’ This balances the tax-cut announcement.
Simon Hoare criticized the Government for the market confidence fall, adding, ‘This stupid folly cannot continue on.’
Some MPs were annoyed by Mr. Kwarteng’s choice to offer unfunded tax cuts over the weekend after last week’s mini-Budget.
One responded, ‘He must change or the PM will’ Mr. Kwarteng met with investment bankers yesterday to calm the market.
Mr Griffiths said the administration would ‘deliver’ Kwarteng’s budget.
Ministers don’t take responsibility for what’s occurring in financial markets, he added. ‘We both know that Putin’s conflict in Ukraine is cascading through things like energy costs and supply side effects.
And in every major economy, interest rates are rising.
‘We believe they’re right because they make our economy competitive,’ he continued. Ultimately, we must do this.
Politicians make economic choices that encourage development. Our economy’s failure to attain 2.5% growth is a problem. Before the 2008 financial crisis, it occurred.
We can get there with a growth-plan-integrated supply-side reform program.
Mr Kwarteng met with top investment bankers today to discuss City reforms and ‘underlined the government’s commitment to budgetary restraint’
He also said he’s ‘working closely’ with the BoE and OBR.
The Treasury said global financial markets have witnessed substantial volatility in recent days, but the UK has been struck worse than others.
These purchases must be made within two weeks. HM Treasury has indemnified the Bank’s financial stability intervention, according to a statement.
‘The Chancellor supports the BoE’s independence. The government will continue to support the Bank’s financial stability and inflation goals.
Former Tory Chancellor Ken Clarke called Mr. Kwarteng’s budget ‘catastrophic’ and ‘serious error’
‘I’ve never seen a budget produce a financial catastrophe so quickly,’ he told Sky News. I was surprised by the budget’s contents and hope we quickly escape it.
‘I was expecting that after the leadership election circus we could deal with a genuine national challenge, but they’ve made a disastrous start.
The budget was a miscalculation that generated a problem.
He continued, ‘The budget was put up in the naive notion that first they had to provide tax cuts because it would give them a nice headline the following day and that giving tax cuts to extremely excellent bankers would bring us back to growth and trickle down to everyone else.
I hope it’s all been pulled up and they’re listening to the Treasury, the Bank of England, and professional economists for advice.
Another day of savage British politics and markets:
Simply having the bank available to buy UK government bonds stabilizes the market, which is the appropriate thing to do.
Joshua Raymond of XTB.com claimed 10-year and 30-year bond rates fell by 0.4 percentage points in’minutes’ following the Bank’s decision.
He stated, “This is a big move for the BOE.”
The UK central bank tried words but failed. It intervenes in bond markets to regulate yields.
This may reassure the market that the Bank is willing to act outside of regular meetings.
He continued, ‘The Bank of England is bandaging financial wounds caused by the Truss administration, which shows little sign of revising policies.’
Until then, the issue is how much longer the Bank will have to interfere.
Earlier, the IMF urged Mr. Kwarteng to reverse his tax cuts in his November 23 mini-Budget.
White House economic advisor Brian Deese was not shocked by the reaction and warned interest rates would climb.
In a tightening cycle, this strategy puts the monetary authority in a position to tighten further. He responded, “I suppose you saw that.”
Maintain budgetary restraint and discipline.
Moody’s said the austerity package might ‘permanently impair the UK’s debt affordability’
Mr. Kwarteng called dozens of Conservative MPs last night to reassure them that the administration can’see this through’
Some top Tories argue that the decline in the Pound is due to fear of a Labour administration.
With Keir Starmer up to 17 points ahead in surveys, former MEP Lord Hannan writes on ConservativeHome: ‘We have witnessed since Friday a market adjustment to the greater chance that Sir Keir Starmer will win in 2024 or 2025 – resulting to more taxes, higher expenditure, and a worse economy.’
The Pound had recovered after falling to $1.03 on Monday, but dropped again this morning as the IMF criticized the ‘large and untargeted’ budget plan.
Unless the UK Government stops the drop, the pound might reach parity with the dollar.
Despite the dollar’s strength, the pound has suffered.
Some Tory MPs, who endorsed Rishi Sunak for leader, are unhappy with the political and economic upheaval.
Mel Stride, head of the Commons Treasury Committee, said, “There’s a lot of worry in the party.”
‘I don’t want to speculate on the future of the Chancellor, but I believe the party should be unifying at a time of economic difficulty,’ he told Sky News.
We don’t need a political crisis right now; we should concentrate on progress.
Simon Hoare, head of the Northern Ireland Select Committee, tweeted: ‘These are not situations beyond Govt/Treasury’ Authored there. This incompetence must end.
Tory MP Robert Largan called it a’mistake’ to decrease the highest income tax rate while ‘the Government’s budgetary space for manoeuvre is so restricted’
High Peak MP tweeted, ‘This is a scary moment.’ Elected leaders must be honest about the choices we face, and the government must be realistic and economically prudent with short-term assistance for people and long-term energy security.
Conservatives are also uneasy.
Nick Timothy, Theresa May’s former chief of staff, criticized the concept.
He tweeted, “This isn’t conservatism.”
Conservatives don’t do that. The other side promotes ideology and market confidence hazards. We need a new strategy, because this was a catastrophe.’
After markets settled and government bonds rose, the Treasury was angry with the IMF’s interference.
John Redwood, a senior Tory, argued the IMF and Bank of England were mistaken about inflation. They didn’t warn us or other central banks that 2021’s monetary policies were too lax, interest rates were too low, and money printing was out of control. They should’ve warned us.
‘They should look forward. Recession should be fought. We must be frugal. But if austerity measures prevail and we get a large recession, borrowing will skyrocket.’
Sir John defended Ms Truss’s tax-cutting strategy and warned the BoE against additional interest rate action. “My message today is that the Government is correct to regard recession as the major concern for the year ahead, not inflation. All analysts think inflation will come down next year, and the sooner the better.”
Lord Frost, a key supporter of Liz Truss, claimed the group backed ‘conventional’ policies that failed to stimulate development.
The PM and Chancellor should ignore the criticism, he told the Telegraph.
A Tory MP remarked, “The elected government sets budgetary policy.” I trust ministers to boost the economy.
In response to criticism, a Treasury spokesman said, ‘We responded quickly to safeguard homes and businesses through this winter and next’
The Government is “committed on developing the economy to increase living standards for everyone,” and the Chancellor’s November 23 statement “will spell out more specifics on the Government’s fiscal guidelines, including ensuring debt reduces as a proportion of GDP in the medium term.”
As the Bank of England prepares to raise interest rates, mortgage crisis fears grow.
Lenders have dropped hundreds of items due to rising prices.
Investors expect a 1.5-point hike in interest rates at or before the Bank of England’s November meeting.
The Bank’s top economist cautioned Threadneedle Street ‘cannot remain inattentive’ to recent events, which imply the cost of borrowing must rise to safeguard the pound and contain inflation.
All this will need a strong monetary policy response, Mr. Pill added.
Why is the BOE panicking? What does purchasing UK bonds imply for pound, rates, and mortgages?
This is Money’s Jane Denton
The Bank of England bought UK debt in a ‘gilt market operation’
The Bank will temporarily buy long-term UK government bonds to address market dysfunction.
‘Continued or worsened market instability would threaten UK financial stability,’ it warned. This would unnecessarily tighten lending conditions and reduce credit to the actual economy.
The Bank hopes this decision would stop UK borrowing rates from spiraling, reduce requests for emergency rate rises, and calm pension funds and the housing market.
We explain what the Bank said and why, how markets and the pound responded, and what interest rates may look like in the coming months.
Banks and building societies have pulled house loans and drastically hiked rates as they confront volatility in the money markets they use to finance home loans and expect huge emergency rate rises.
Pension funds are also under strain because fund managers are asking for cash for liability-driven investment funds used by defined benefit plans. Without the Bank’s intervention, pension funds would have collapsed by this afternoon.
Russ Mould, investment director at AJ Bell, said Bank of England Governor Andrew Bailey and the Monetary Policy Committee are pursuing unorthodox monetary policy.
eToro global markets strategist Ben Laidler said, ‘Desperate circumstances call for desperate methods.’
In an effort to put out the fire that’s been blazing since last week’s mini-Budget, the Bank has rescued the falling UK bond market, which had shut down the UK’s mortgage market and was more destructive than lower currency.
The temporary purchase of long-dated gilts reverses the Bank’s ‘quantitative tightening’ bond sales programme, raising bond prices.
Yields are still over 1% higher than last week, adding £1,400 to a typical variable-rate mortgage.
Victoria Scholar, head of investing at Interactive Investor, said: ‘Its limitless bond purchases attempt to arrest the market’s current slump’
Although the central bank refrained from an emergency rate rise to counteract sterling’s FX drop, it has interfered in the bond market.
In reaction, yields fell and long-term bonds rallied.
The FPC’s duty is to guarantee financial system stability, thus it bought 30-year gilts today.
Torsten Bell, head of the left-leaning Resolution Foundation, called the Bank’s intervention to restore order in government bond markets ‘crazy’