Bank steps in to calm panic in UK
THE Bank of England intervened to buy up billions of pounds of bonds yesterday amid fears that UK financial institutions would have been demolished within hours
The bank was under huge pressure from huge moves in gilts – bonds issued to finance government borrowing – combined with the plunging value of the British pound. And officials believed they were witnessing a ‘dynamic run’ similar to that seen when Northern Rock failed at the start of the 20072008 credit crunch.
The situation has become dramatically worse in the UK in the days since the British mini-budget was announced last Friday.
Markets took fright after UK chancellor Kwasi Kwarteng announced a major package of tax cuts, funded by extra borrowing, alongside a huge bailout to freeze energy bills. The bond purchases – which could total £65billion (€72billion) – will be financed from Bank of England reserves.
The pound eventually fell to a record low against the dollar of $1.03 and some say it could reach parity within weeks.
The budget included plans to scrap the top rate of income tax, at 45% for those earning more than £150,000 per year. The basic rate of tax will be cut to 19%.
Calling the budget ‘nuts’ Ryanair boss Michael O’Leary expressed his concern over the knock-on effect in Ireland of Mr Kwarteng’s ‘completely uncosted’ two-year energy guarantee.
The level of the UK’s planned borrowing shocked the markets and the International Monetary Fund has warned that it could spark a recession.
Speaking in Dublin yesterday morning, Mr O’Leary said the mini-budget could destroy the UK economy in coming years.
‘I think what they have done in the UK is nuts. You can’t have an energy guarantee that runs for two years. It’s completely uncosted. I think they could bankrupt the UK economy in the next two years.’
Warning of the potential consequences, Mr O’Leary used the Irish bank guarantee of 2007 and 2008 as an example to the UK.
The financial crisis sent Ireland into recession for the first time since the 1980s, with levels of emigration and unemployment soaring to unseen levels.
‘We can’t go back there again’ the Ryanair boss said.