Dithering Bank of England rattles markets after being accused of giving ‘conflicted and confused’ guidance over emergency bailout
- Bank of England is accused of giving ‘conflicted and confused’ guidance
- Officials stepped in to stabilise Government debt after Kwarteng’s ‘mini-Budget’
- Questions have been raised over how long they will be prepared to fund bailout
- Handful of lenders reportedly told it could be ‘prolonged’ after governor Andrew Bailey said scheme must end on Friday
The Bank of England was accused of giving ‘conflicted and confused’ guidance yesterday as it appeared to flip-flop over when it would end its emergency bailout of the bond market.
Bank officials were forced to step in last month to stabilise government debt markets after Chancellor Kwasi Kwarteng’s mini-Budget sent investors into a tailspin.
The scheme, worth up to £65billion, was due to end tomorrow.
But after calls from pension funds – which have been caught up in the chaos – to extend the bailout, it appeared that the Bank was re-thinking its plans.
A handful of major lenders were told by the Bank that officials would be open to prolonging the bond-buying programme, the Financial Times reported yesterday morning.
The report – which temporarily boosted the pound and gilt markets – came hours after Bank governor Andrew Bailey said the exact opposite.
Bank officials were forced to step in last month to stabilise Government debt markets after Chancellor Kwasi Kwarteng’s (pictured with Bank of England Governor Andrew Bailey) ‘mini-Budget’
The key blunders which led to a slump in the pound include failing to scale back money-printing in May 2021 and soaring inflation throughout 2022
Key blunders that led to slump in the pound
The Bank of England and its governor Andrew Bailey have been accused of a series of blunders in their handling of the economy. With inflation nearly five times the 2 per cent target at 9.9 per cent, and the financial markets in turmoil, here are some key moments when the Bank botched its response.
With inflation at 2.1 per cent, then-chief economist Andy Haldane called for the Bank’s money-printing programme to be scaled back. He was out-voted by monetary policy committee members, including Mr Bailey, in a move that is likely to have stoked inflation.
Interest rates were expected to rise for the first time since the onset of the pandemic to bring inflation of 5.1 per cent back under control. Instead of raising rates to 0.25 per cent, the Bank kept them at a record low of 0.1 per cent.
With inflation now running at 9.4 per cent, there were calls for a rate rise of 0.5 percentage points to get to grips with the problem. The Bank opted for a rise of 0.25 percentage points.
The Bank was under pressure to raise rates by a bumper 0.75 percentage points having seen inflation hit a four-decade high above 10 per cent before easing slightly to 9.9 per cent. It instead raised rates by 0.5 percentage points.
Over 12 hours this week, the Bank sent a series of mixed signals over its bond-buying programme designed to restore order to the gilt markets. Mr Bailey said its intervention would end tomorrow. Then, a Financial Times report said the deadline could be extended. Finally, the Bank insisted the programme would end tomorrow as planned.
Speaking at the annual meeting of the International Monetary Fund in Washington DC on Tuesday night, he said the rescue scheme would definitely end tomorrow.
In an embarrassment for the Bank, a spokesman reiterated Mr Bailey’s words yesterday.
The spokesman said: ‘As the Bank has made clear from the outset, its temporary and targeted purchases of gilts will end on October 14.
‘The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels.’
The Bank was lambasted by City commentators for its mixed messaging.
Former pensions minister Sir Steve Webb said the Bank was ‘partly responsible for the mess’ – and said the decision to terminate its bond buying programme tomorrow was a mistake.
He added: ‘Whilst you wouldn’t sack the governor of the Bank in the middle of a crisis, I certainly wouldn’t renew his contract.’
The turmoil in government debt markets began on September 23, when Mr Kwarteng unveiled a series of tax cuts without revealing how they would be funded.
Investors, alarmed by the prospect of more borrowing, began dumping government bonds, known as ‘gilts’.
But Jacob Rees-Mogg said that the chaos in the financial markets had ‘much more’ to do with the Bank’s policy on interest rates than the Government’s emergency Budget.
Yesterday, the Business Secretary dismissed suggestions that investors had taken fright and said the main cause of market disquiet and Sterling’s slide against the dollar was the failure of the Bank to raise interest rates in line with the US Federal Reserve.
Mr Rees-Mogg rounded on BBC presenter Mishal Husain after she suggested the market chaos was a direct result of the Government’s decision to press ahead with £45billion in unfunded tax cuts.
He told Radio 4’s Today programme: ‘What has caused the effect in pension funds… is not necessarily the mini-Budget.
‘It could just as easily be the fact that the day before the Bank of England did not raise interest rates as much as the [US] Federal Reserve did. Jumping to conclusions about causality is not meeting the BBC’s requirement for impartiality.’
Deutsche Bank’s chief UK economist Sanjay Raja told the Commons Treasury Committee that the mini-Budget was the ‘straw that broke the camel’s back’.
Downing Street said Mr Rees-Mogg was right to point out the global nature of the disruption to financial markets.
But the Prime Minister’s official spokesman said Liz Truss accepted that the presentation of the emergency Budget could have been handled better.
He told reporters: ‘The PM has acknowledged that because we, rightly, moved at speed we could have laid the ground better.’
The Bank of England has been accused of giving ‘conflicted and confused’ guidance over bailout scheme
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