November 29, 2022
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Pound slides; former BOE chief Carney accuses government of ‘undercutting’ Bank – business live | Bonds

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Truss and Philp fail to reassure markets

The prime minister, Liz Truss, and the Treasury’s no 2, Chris Philp, have both done a round of broadcast interviews this morning – but their comments appear to have done little to reassure markets.

Government bond yields are rising again, the stock market has tumbled and the pound is sliding. Sterling is now worth $1.0789, a 0.9% drop on the day.

The FTSE 100 and FTSE 250 indices have lost 1.8% and 2.3% respectively this morning. Germany’s Dax has dropped 1.9%, France’s CAC has slid 1.8% and Italy’s FTSE MiB fell 1.1%.

Despite a barrage of criticism, from the International Monetary Trust and the former Bank of England governor Mark Carney, the government is refusing to perform a U-turn on the package of £45bn of unfunded tax cuts aimed at the wealthy it announced on Friday. There is also no sign at the moment that the fiscal policy statement planned for 23 November could be brought forward.

Truss said this morning: “I have to do what I believe is right for the country and what is going to help move our country forward.”

Philp sidestepped a question about the crisis, saying: “There was a crisis with the energy situation and we’ve addressed that and if any other challenges arise then the government will deal with it where it’s in our power or the independent central bank if it’s in their power.”

British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, Kent, on 23 September.
British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, Kent, on 23 September. Photograph: Dylan Martinez/Reuters

UK government bond yields rise again

Yields (or interest rates) on UK government bonds are rising again, a day after the Bank of England’s emergency intervention led to a sharp drop.

The 30-year yield, which plunged by more than 1 percentage point on Wednesday, has risen to 4.06% while the 10-year yield has climbed to 4.17%. Any rise in yields pushes up government borrowing costs.

Sweeping tax cuts announced by Kwasi Kwarteng in his mini-budget last week have triggered investor panic over a borrowing binge and the future health of the UK economy.

Crisis, what crisis?

Asked whether there is a crisis, Philp replies:

There was a crisis with the energy situation and we’ve addressed that and if any other challenges arise then the government will deal with where it’s in our power or the independent central bank if it’s in their power.

Here’s our full story on the former Bank of England governor Mark Carney’s comments. He has accused Liz Truss’ government of “undercutting” the country’s economic institutions and working at “cross purposes” with Threadneedle Street, which is battling high inflation.

Chief secretary to Treasury vows ‘iron discipline to spending limits’

Chris Philp, the chancellor’s no 2 at the Treasury, is on radio 4’s Today programme.

If we can get economic growth going, which is our intention, it will lead to wages going up and lead to new and better jobs being created and will ultimately pay the taxes that fund public services like health, the NHS and so on.

He then trumpets the government’s energy price freeze.

In the last six to nine months we’ve seen global markets suffer a lot of volatility, we’ve seen huge dollar strength against the euro, yen and sterling. We’ve seen interest rates rise across the globe and in fact interest rates in other countries like the USA have increased by more than here.

This is not the only country where there’s been volatility. The Bank of Japan a few days ago had to intervene exceptionally in the yen-dollar market. But what people should be assured about, is that if intervention is needed to protect their family finances this is a government and an independent Bank of England that will do that.

These bond yields have been going up globally for a number of months.

Asked about scrapping the top tax rate of 45p, he defends the move.

That was one twentieth, less than 5% of total fiscal measures.

The tax measures were designed to make us internationally competitive.

He has also pledged “ iron discipline in sticking to existing spending targets”.

Asked whether the government could bring forward the 23 November fiscal statement, he says no.

The statement is fixed for the 23rd [November].

Housing and retail stocks are taking a hammering this morning, with Barratt, one of Britain’s biggest housebuilders, the main faller on the FTSE 100, down 8.6%.

The retailers Next and Ocado, and the property firm Rightmove are also among the top losers.

Next warned this morning that the UK could be heading for a second cost of living crisis next year as the slump in the value of the pound drives further price rises, reports our retail correspondent Sarah Butler.

The fashion and homewares retailer cut sales and profit expectations for the year after a disappointing August and on fears that ongoing inflationary pressures would put a squeeze on shoppers’ spare cash.

The FTSE 100 has fallen 87 points, or 1.25%, to 6,918 after the opening bell.

Liz Truss has ended her silence since Friday’s mini-budget, and is speaking publicly in a round of local radio interviews.

The prime minister has defended the package of unfunded tax cuts, saying she is prepared to take “controversial and difficult decisions”.

You can read more on our politics live blog with Andrew Sparrow here.

Estate agents tell of woes in Britain’s housing market

Estate agents tell of the woes in Britain’s housing market, where a record number of mortgage products were withdrawn and property sales have fallen through, in the wake of Kwarteng’s mini-budget last Friday.

Almost 1,000 mortgage products were pulled overnight from the market, according to Moneyfacts yesterday.

Ian Wyn Jones, of the eponymous estate agents in Gwyneth in north Wales, told BBC radio 4’s Today programme:

What I’ve seen in the last 24 hours, a lot of my clients’ mortgage offers have been pulled, properties have collapsed in terms of the sales, chains have collapsed, it’s wiped a lot of cash from the pipeline. It doesn’t look good at the moment.

We had about four properties yesterday where lenders just pulled their offers.

The sudden shift is threatening to stall the housing market, with borrowers saying they have been unable to secure loans or have had provisional offers withdrawn, while others are paying huge financial penalties to break their existing deals and in order to lock in fixed rates for longer, report the Guardian’s Lisa Carroll and Clea Skopeliti.

Introduction: Pound slides; former BOE chief Carney accuses government of ‘undercutting’ Bank

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Criticism of Kwasi Kwarteng’s mini-budget last Friday – a package of £45bn of unfunded tax cuts that mainly benefit the wealthy – continues to mount.

Sir Mark Carney, who preceded Andrew Bailey as Bank of England governor, has accused the UK government of “undercutting” the UK’s economic institutions. He told the BBC:

Unfortunately having a partial budget, in these circumstances – tough global economy, tough financial market position, working at cross-purposes with the Bank – has led to quite dramatic moves in financial markets.

There was an undercutting of some of the institutions that underpin the overall approach – not having an OBR forecast. [from the fiscal watchdog, the Office for Budget Responsibility]. It’s important to have [the mini-budget] subject to independent and dare I say expert scrutiny.

The message of financial markets is that there is a limit to unfunded spending and unfunded tax cuts in this environment and the price of those is much higher borrowing costs for the government and mortgage holders and borrowers up and down the country.

The pound continues to slide, despite the Bank of England’s emergency intervention to stabilise the bond market. This has calmed nerves in the bond and stock markets, while sterling remains under pressure.

Asian stock markets mostly rose, with Japan’s Nikkei up 0.95% while Hong Kong’s Hang Seng is down 0.35%.

Sterling is trading 1.1% lower at $1.0766 this morning. The euro has also weakened against the dollar, by 0.75% to $0.9663. The dollar, boosted by its safe-haven appeal and the Fed’s interest rate hikes, has strengthened generally, but sterling has been the worst-hit major currency in recent days.

The Bank of England was forced to step in to head off a funding crisis for Britain’s pension funds, after Kwarteng’s ill-received mini budget led to a bond selloff, sending government borrowing costs soaring. The central bank has set aside £65bn to buy longer-dated bonds over the next 13 working days to ease pressure on pension funds and insurers.

ANZ economist Finn Robinson says:

It’s all a bit of a mess.

How long the calm and fresh optimism lasts remains to be seen. For one, this re-stimulation will lift, not quell UK inflation, and that’s bad for bonds and sterling.

Yields on gilts, as UK government bonds are known, especially 30-year bonds, fell sharply after the Bank’s move. The 10-year benchmark bond fell back to 4%. US Treasuries also rebounded, where benchmark 10-year yields fell from over 4% to 3.7472%. (Yields move in an inverse relationship to prices.)

Carney said on radio 4’s Today programme:

If the Bank had done nothing, we would have had further moves up in government bond yields and potentially some of these pension funds unable to meet short-term obligations and knock-on effects that were beginning to show up.

And that would more than ripple, it would cascade through financial markets to the counterparties the people that those pension funds deal with.

The core thing is the Bank acted, it was able to act because it has that structure and it rightly stepped in at the point where the system was about not to function.

Porsche makes its stock market debut today, in what is expected to be the second-largest initial public offering in German history.

It priced its shares at the top end of the announced range, at €82.50 a share. They are trading 2.9% higher before the official start of trading on the Frankfurt stock exchange later this morning.

Porsche is being spun out of Volkswagen, and in a nod to its most famous model, Porsche has been split into 911m shares. Volkswagen is owned by Porsche Automobil Holding, the investment vehicle of the founding Porsche and Piech family.

The Agenda

  • 8am BST: Spain inflation for September (forecast: 10.1%)

  • 10am BST: Eurozone consumer confidence final for September

  • 1pm BST: Germany inflation for September (forecast: 9.4%)

  • 1.30pm BST: US GDP final for second quarter

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