UK economy faces up to fresh crisis
BANK BUYS UP GOVERNMENT BONDS
THE UK’s economic collapse continued yesterday as the Bank of England launched an emergency bond-buying drive to stop borrowing costs spiralling out of control and stave off a “material risk to UK financial stability”.
It said it was stepping in to buy up to £65 billion worth of government bonds – known as gilts – at an “urgent pace” after fears over the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.
The market turmoil had forced pension funds to sell government bonds to head off worries over their solvency, but this was threatening to see them suffer severe losses and was creating a downward spiral in gilt prices as more were offloaded.
The bank’s extraordinary intervention, responding directly to the Government’s tax-cutting strategy, will pile further pressure on new PM Liz Truss and chancellor Kwasi Kwarteng.
While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts – a proxy for the effective interest rate on public borrowing – has also soared by the most in a five-day period since 1976.
The scale of the crisis has led to unease in some Tory quarters, while Labour has joined calls for Parliament to be recalled.
“The Government has clearly lost control of the economy,” said leader Keir Starmer.
Damage
“What the Government needs to do now is recall Parliament and abandon this budget before any more damage is done.”
However, the Financial Secretary to the UK Treasury Andrew Griffith insisted the government was sticking to the plan set out by Mr Kwarteng in the Commons.
“What the chancellor and I are focused on is delivering that economic growth plan,” he said. “We think they are the right plans because those plans make our economy competitive.”
In a bid to reduce future borrowing, the government is set to ask Cabinet ministers to make savings in their budgets.