Shadow Chancellor Rachel Reeves has called on Chancellor Kwasi Kwarteng to issue an urgent statement on how the Government plans to fix the current economic crisis following the Bank of England’s emergency intervention in bond market today.
The BoE has committed to buying £5bn of bonds per auction (beginning today and ending 14th October) initially but has said that it will spend as much as required to soothe the market.
The Shadow Chancellor tweeted: “People will be deeply worried about the cost of their mortgage, about their pensions, and about the impact this will have on their cost of living.
“This is a serious situation made in Downing Street and is the direct result of the Conservative Government’s reckless actions, which include tax cuts for the richest 1%.
“Their decisions will cause higher inflation and higher interest rates – and are not a credible plan for growth.
“The chancellor must make an urgent statement on how he is going to fix the crisis that he has made.”
The Chancellor has been meeting investment bankers today and told them that the Government is committed to fiscal responsibility.
However, both Kwarteng, and Prime Minister Liz Truss have been subject to criticism on the back of the current crisis.
Reaction
Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management:
“Truss and Kwarteng broke the UK gilt market after the mini-Budget on Friday, with yields soaring and bond prices dropping.
“Government borrowing costs soared following announcements of up to £200bn of spending and unfunded tax cuts.
“Unfortunately, this was having a knock-on effect in the real world. Mortgage lenders have shut their doors to new borrowers, pension funds are nursing big losses and the (thankfully still independent) Bank of England was right to intervene and become the Gilt buyer of last resort. We are in crisis territory right now, and emergency action has to be taken.
“Borrowing costs have to come down. We hope that the Government will backtrack but fear it won’t. Truss and Kwarteng are in hiding.
“This will pile further pressure on Sterling, though, as the Bank of England never intervenes in this market.
“Funds betting on a UK crisis will concentrate their bets on the currency now. Also, traditionally if US bonds are yielding more than UK bonds, money will flow across the Atlantic.”
Graham Cox, director of Bristol-based Self Employed Mortgage Hub:
“Goodbye quantitive tightening, welcome back quantitive easing. If it wasn’t so serious, it would be laughable how quickly the Bank of England has had to do a 180 degree turn. More kicking the can down the road.
“The economic circumstances look increasingly dire with each passing day.
“The credibility of Kwarteng and Truss has been shattered. We need a General Election now because this Government is a sinking ship and will take millions down with it.”
Adrian Kidd, chartered wealth manager at Aylesbury-based EQ Financial Planning:
“The UK has officially gone crazy. On the international stage, we are now a total joke. The Government needs to backtrack, however much pride they have to swallow. If not, I fear for the UK economy.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:
“As soon as the bank announced this, gilt rates dropped half a percent. This was a much needed intervention in the market, the only other alternative being to jack rates up by up to 2%. This would have crushed homeowners with mortgages. It’s further evidence that the mini-Budget was a disaster.”
Dominik Lipnicki, director of Your Mortgage Decisions:
“This was the right course of action, but it does, however, show a level of desperation to stabilise the markets.
“The fact that the Pound sank after the decision underlines that. The Bank of England have also stated that this will be funded from reserves and not from printing new money.
“The Government will find it hard to U-turn but the pressure on them to do so is growing by the day.”
