Closing summary
More than two-fifths of Britain’s mortgage deals have been withdrawn since last Friday’s mini-budget, which brought chaos to the market. Kwasi Kwarteng’s package of £45bn of unfunded tax cuts and likely borrowing binge sent the yields on government bonds soaring and raised expectations that the Bank of England will be forced to raise its base rate to 6% by next summer. Experts have warned that house prices could crash up to 20% next year.
The prime minister, Liz Truss, and the Treasury’s no 2, Chris Philp, both did a round of broadcast interviews this morning to defend their economic plans, but their comments have failed to restore investor confidence. The pound has now recovered in volatile trading but stocks have sold off and government bond yields are rising again, increasing government borrowing costs.
The former governor of the Bank of England Mark Carney has accused Liz Truss’s government of “undercutting” the country’s economic institutions and working at “cross purposes” with Threadneedle Street.
Our other main stories today:
Next’s chief executive has warned 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.
Thank you for reading. We’ll be back tomorrow. – JK
Updated
Pound recovers, Wall Street slides
Wall Street has opened lower, with the tech-heavy Nasdaq tumbling 2% and the Dow Jones losing 1.1%, as investors fret about the global economic outlook.
US GDP fell 0.6% in the second quarter, as expected, the final estimate confirmed.
The pound has staged a recovery against the dollar, reversing earlier losses, and is now trading 0.78% higher at $1.0975, while the euro is flat against the dollar at $0.9728.
Stock markets in Europe are still deep in the red. The UK’s FTSE 100 index has lost nearly 2% and has fallen 136 points to 6,867, while Germany’s Dax has fallen 1.5%, France’s CAC has slid 1.3% and Italy’s FTSE MiB has tumbled 2.6%.
UK government bond yields have risen again today, after yesterday’s emergency intervention by the Bank of England to stabilise the bond market led to a sharp drop in yields. The yield on the benchmark 10-year gilt is up 12 basis points to 14.13% while the 30-year yield is at 3.9% – after rising to 5.5% before the Bank’s intervention on Wednesday.
German inflation at 10.7%, highest in over 25 years
In Germany, inflation climbed to 10.9% last month, the highest level in more than a quarter of a century.
The rise in consumer prices, harmonised to make them comparable with inflation data from other EU countries, was driven by a 43% jump in energy prices, after a cheap rail ticket offer and a fuel tax cut expired at the end of August. It was the highest HICP figure since comparable data started in 1996.
Germany’s non-harmonised measure of inflation in September rose to 10%, the highest since the early 1950s.
The figures came after a forecast by a leading group of think tanks that painted a bleak picture for Germany’s economy.
According to the think tanks’ projections, the crisis in the gas markets, spiralling energy prices and a massive drop in purchasing power will push the German economy into recession.
The high cost of energy was the leading factor “driving Germany toward recession,” said Torsten Schmidt, head of economic research at the RWI think tank.
Germany's inflation rate increased to a record 10% in September.
— DW Politics (@dw_politics) September 29, 2022
The news comes after economic institutes predicted the economy shrink next year.https://t.co/xkQfE77hv8
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HSBC will review whether to keep its global headquarters in London’s Canary Wharf, according to a memo sent to staff, Reuters reports.
The bank said it had decided to carry out a review “of the best future location in London” before its lease expires at the 45-floor tower in early 2027.
The bank said it will also look at the option of renovating the tower, which hosts up to 8,000 workers, and that it would keep its global headquarters in London.
It has been fending off calls for a break-up from its top investor, while for years it has also been urged by some to shift its HQ to Asia, where it generates the bulk of its profits.
The bank said pending the review, it would occupy 25% less space in the tower by shutting down some floors and relocating teams to lower its costs.
Like other financial firms, it has embraced hybrid working, and has committed to axing around 40% of its office space. It has been in 8 Canada Square, one of the tallest towers in Canary Wharf, since 2002.
Sorrell predicts bathtub recession in UK
Sir Martin Sorrell, founder and chairman of the media company S4 Capital, has predicted a “bathtub” shaped recession for the UK, with two difficult years in 2023 and 2024.
While he broadly welcomed the government’s growth strategy, he said the timing was wrong. He added that the corporation tax change (rather than rising to 25% from April 2023, the rate will remain at 19% for all firms) will not encourage investment, as long as there is heightened uncertainty over the UK’s future.
He told Sarah Montague on BBC radio 4’s World at One:
I don’t think rates of tax necessarily determine whether people invest, it’s certainty or uncertainty that makes you invest and the environment partly as a result of his statement on Friday and what he said over the weekend that there might be other unfunded tax reductions… has created even greater uncertainty. The issue of uncertainty is the real issue. Businesses will gust go on strike, they won’t invest until they see some clarity and we’re not going to get clarity for the next few weeks: no parliament, the Conservative party conference coming up…
This is just like the CEO and the CFO of a company coming up and saying: my revenue’s down, my costs are up and I have no specific plan for dealing with it, just leaving the shareholders in limbo. Unfortunately the shareholders only vote at times of elections so we have to wait for two years to see what the result of this is.
There will be falls in employment [in part] as a result of this [the mini-budget].
Asked about the likely shape of the recession, Sorrell said:
This is a bathtub [recession]. What we’re going to see 2023 and 2024 are difficult.
(Simon Johnson, former chief economist for the International Monetary Fund, has said that a U-shaped recession is like a bathtub: “You go in. You stay in. The sides are slippery. You know, maybe there’s some bumpy stuff in the bottom, but you don’t come out of the bathtub for a long time.”)
Sorrell went on to explain:
We’re in a difficult place. I don’t think we’ll see a recovery until the US presidential election in 2024. What I think the government has done here is gamble politically that by the general election in the UK in 2024 there will be some growth and that will bail them out. That is a heck of a gamble, particularly if you don’t have a fiscal plan.
Mortgage chaos: 41% of deals pulled since mini-budget
Forty-one per cent of mortgage products have been taken off the market since Kwasi Kwarteng’s mini-budget last Friday, which sparked panic in financial markets, and expectations of a jump in the Bank of England’s base rate to 6% by next summer.
A further 321 products were withdrawn overnight, on top of the record 935 pulled the day before, according to Moneyfacts.
Between Friday and today a total of 1,621 residential mortgage products have been withdrawn leaving 2,340 on sale today.
According to Defaqto, more than 20 providers have withdrawn their entire fixed rate mortgage range.
Katie Brain of Defaqto says:
What products are left are changing at a rapid pace, lenders seem to be really unsure of what to offer and what price with so many changes in the money markets at the moment.
Consumer finance expert Martin Lewis has tweeted:
For every £100,000 of mortgage, you'll pay roughly £600 a year more for each 1% pt interest rate rise.
— Martin Lewis (@MartinSLewis) September 28, 2022
Top fixes today are 3%ish more than a year ago (so £1,800 per £100,000).
If UK rates rise to 6%, as some predict mortgages'd likely rise more than another 3% again
BUT...
That assumes people will be accepted for the top fixes.
— Martin Lewis (@MartinSLewis) September 28, 2022
At those rates of interest though many more will likely fail the affordability checks - which means likely sticking with their own lenders (poss costlier) fix or moving onto standard variable rates, which are even higher.
Liz Truss was asked about mortgages this morning.
An awkward moment.
— Pippa Crerar (@PippaCrerar) September 29, 2022
BBC Stoke’s @johnacres48 asks Liz Truss about mortgages dwarfing any savings her govt may have made people.
“You’ve done this yourself. This isn’t to do with external forces. This is about your mini budget and what it’s done to the economy”.
Truss: “…….” https://t.co/xiw7nRSsCC
As a reminder:
Liz Truss, 25 July 2022, when warned by Rishi Sunak that her plans would make inflation worse and mortgage rates soar and lose them the next election:
— Nadine Batchelor-Hunt (@nadinebh_) September 27, 2022
‘I don’t believe in this negative, declinist language’
‘I have lots of economists that are backing my plans’ pic.twitter.com/pzSFYJoGbo
Updated
Katie Brain, consumer banking expert at the financial information firm Defaqto, paints a dire picture in the mortgage market.
Within the space of a week we have seen some dramatic changes within the mortgage market. Nearly 3,000 mortgage products have been withdrawn, and over 20 providers have withdrawn their entire fixed rate mortgage range. What products are left are changing at a rapid pace, lenders seem to be really unsure of what to offer and what price with so many changes in the money markets at the moment.
Unfortunately for borrowers this means that the cost of a mortgage has increased, some providers increasing their fixed rates by more than 1.50%, when the base rate only increased by a fraction of that. However, interest rates on best buys for five-year fixed rates have not increased as much as the two-year fixed rates (yet), so if you are someone who is on a variable rate and are looking to fix, or coming to the end of a current deal then now is the time to act as interest rates are changing daily.
Many of the best rates are only available direct through a lender so it is worth contacting your existing lender, or bank you have other accounts with, to see what they have to offer. We can only hope that the situation calms down soon, so at least borrowers can seek alternative mortgage deals should they need to.
Updated
The availability of mortgage deals in the UK continues to worsen, as the expectation of a sharp rise in interest rates to 6% by next summer has prompted lenders to pull products, leading to chaos in the housing market. Here are the latest figures from Moneyfacts, quoted by Sky journalist Scott Beasley.
🏡 Mortgage market - fully 40% of products now taken off the market since the ‘mini budget’
— Scott Beasley (@SkyScottBeasley) September 29, 2022
📉 Further 321 products withdrawn overnight
📉 On top of a record 935 withdrawn day before
So in just 6 days since Chancellor spoke:
📉 1,621 products withdrawn-leaving 2,340 on sale
Another Twitter user said that the same mortgage that was 3.93% on Tuesday is 5.64% today with HSBC ( a five-year fee saver fix).
Updated
EU leaders to discuss 'sabotage' on Nord Stream next week
EU leaders will discuss next week what they regard as “sabotage” on the subsea Nord Stream gas pipelines, according to an EU official in Brussels.
He said:
The attack on strategic infrastructure means that the strategic infrastructure in the entire EU has to be protected.
This changes fundamentally the nature of the conflict as we have seen it so far, just like the mobilisation… and the possible annexation.
He was referring to Russia’s mobilising of 300,000 more troops for its war in Ukraine and expectations that president Vladimir Putin will annex eastern Ukrainian regions. He is expected to begin formally annexing 15% of Ukrainian territory on Friday to add four Ukrainian regions to Russia.
As gas continued to leak into the Baltic Sea for a fourth day since leaks were first discovered, it remained unclear who might be behind any deliberate attack on the pipelines.
Russia said the incidents looked like “an act of terrorism”, and that the leaks off the coasts of Denmark and Sweden occurred in territory that is “fully under the control” of US intelligence agencies.
Lindt wins chocolate bunny battle in Swiss court
Lindt & Sprüngli has won its battle against the German discount retailer Lidl, as Switzerland’s highest court ruled that the Swiss chocolatier’s famous Easter chocolate bunnies deserve protection from copycat products.
It has ordered Lidl to stop selling a similar bunny in Switzerland and to destroy its remaining stock.
The Federal Court said surveys submitted by Lindt showed its gold foil wrapped Easter bunny was well known to the public. It added that the two products were likely to be confused even though there are some differences.
Regarding the inventory destruction, the court said in a summary of its verdict:
Destruction is proportionate, especially as it does not necessarily mean that the chocolate as such would have to be destroyed.
The Swiss premium chocolate maker Lindt has fought many court battles over the years to protect the Easter bunny, one of its best-selling products. Germany’s federal court ruled last year that the gold tone of Lindt’s foil-wrapped bunny had trademark protection.
Porsche makes stock market debut
Porsche has made its stock market debut, one of the biggest public offerings in Europe ever.
Shares in the German sports car maker initially rose to €84 when they started trading in Frankfurt, valuing the company at €75bn. They were priced at the top end of the announced range, at €82.50, last night. The stock has since fallen back 7.9% to €62.50, amid a general share selloff. The Dax has fallen 1%, or 122 points, to 12,059.
The parent company Volkswagen is offering 911m shares, in a nod to Porsche’s famous 911 model.
Porsche hailed the beginning of a “new era” and chief executive Oliver Blume said:
Today, a big dream comes true for Porsche. Our increased degree of autonomy puts us in a very good position to implement our ambitious goals in the coming years.
Other companies are thought to be delaying going public because of the market turbulence.
Truss: Fracking must have community consent
Liz Truss said this morning that fracking will only be allowed to take place where a community has consented, and the government is working on the “detailed issues” about how support can be assessed.
She told BBC Radio Lancashire, which broadcasts in the region where fracking for shale gas was halted after earth tremors:
It’s very important for me as prime minister that any fracking has local community consent.
This month, her government controversially lifted a moratorium on fracking in England that had been in place since 2019, arguing that strengthening energy supply was an “absolute priority”. However, many experts, communities and MPs are strongly opposed to fracking.
In some good news, Spanish inflation fell in September to 9% from 10.5% in August, marking the second month of decline. These figures fuel hopes that the peak in inflation is now behind us, says ING economist Wouter Thierie.
He explains:
The decline in headline inflation is mainly due to base effects that are starting to kick in. We are now comparing energy prices to a period when energy prices started to rise in 2021. Increasing base effects will further weaken year-on-year comparisons. Encouragingly, core inflation has also cooled slightly, suggesting that the strength of second-round effects is waning, mitigating the risks of entering a wage-price spiral. In the coming months, the cooling demand will ease inflationary pressures as it will become more difficult for companies to pass on new price increases to the end customer.
Nevertheless, inflation will remain high until the end of the year. For the whole of 2022, we forecast inflation to come out around 9%. In 2023, inflation will gradually start to come down, reaching 4.5%. From 1 October, the Spanish government will reduce VAT on gas from 21% to 5% to soften the inflation shock. However, this will have only a marginal effect on the consumer prices index.
Despite the cooling trend, inflation remains historically high across the eurozone. Therefore, the current high inflation figures are unlikely to prompt the European Central Bank to ease its monetary tightening policy. Judging from ECB officials’ latest speeches, their first priority is to reduce inflation as soon as possible, rather than looking at inflation expectations or medium-term inflation. A 9% inflation rate is still well above the ECB’s 2% target. Even with an upcoming recession, we think it likely that the ECB will opt for another 75 basis point rate hike in November as well.
We’ll be getting inflation data from Germany at lunchtime. This morning, regional figures showed that inflation rose to a record 10.1% in the most populous state of North Rhine-Westphalia.
Good morning from #Germany, where #inflation could rise by double digits. In the most populous state of North Rhine-Westphalia, CPI has risen by 10.1%, which is a record in the statistics. Compared to the previous month, #inflation increased 1.8%. pic.twitter.com/RMAK2iPKde
— Holger Zschaepitz (@Schuldensuehner) September 29, 2022
Confidence in the eurozone has fallen sharply, and by more than expected, among consumers and companies.
The European Commission’s monthly economic sentiment index fell to 93.7 points in September from a downwardly revised 97.3 in August.
Confidence worsened in all economic sectors, such as industry, services and retail, while inflation expectations rose. The decline was worst among manufacturers and consumers.
Household confidence fell to -28.8 points from -25, and consumers said they would scale back major purchases.
UK watchdog tells insurers to help customers in cost of living crisis
Britain’s financial watchdog has told insurers to help customers struggling to pay the premiums on their policies, which could leave them unprotected.
The Financial Conduct Authority said it was writing to the bosses of insurance firms to to make sure their customers are protected from unnecessary products or add-ons and unfair penalties. Where poor practice is found, the FCA vowed to quickly intervene to protect customers from harm.
The watchdog said firms can help customers in financial difficulty by:
Reassessing customers’ needs
Considering whether there are other products that better meet the customer’s needs
Providing clear information to consumers about the additional cost of premium finance
Working with customers to avoid the need to cancel necessary cover
Waiving fees associated with adjusting a customer’s policy in line with the reassessments
Considering whether cancellation fees should be removed for customers in financial difficulty
Sheldon Mills, executive director of onsumers and competition at the FCA, said:
Customers who are struggling with their finances should contact their providers as soon as possible. We encourage customers to continue to shop around to find the best deal.
Firms should not unfairly penalise them for any payment difficulties but instead work with them to find solutions.
Fourth leak found on Nord Stream pipelines
A fourth leak has been found on Nord Stream pipelines, Sweden’s coast guard says, the latest twist in Europe’s energy crisis.
The coast guard discovered a fourth gas leak on the damaged Nord Stream pipelines earlier this week, a coast guard spokesperson told the Svenska Dagbladet newspaper.
”Two of these four are in Sweden’s exclusive economic zone,” the spokesperson, Jenny Larsson, told the newspaper.
The two other holes are in the Danish exclusive economic zone, according to a translation of the report published by Reuters.
You can read more on our Russia-Ukraine war live blog with Martin Belam here.
The European Union suspects sabotage was behind the gas leaks on the subsea Russian pipelines to Europe and has promised a “robust” response to any intentional disruption of its energy infrastructure.
Shafik also took aim at the tax cuts.
The key to growth is to create an environment where there are great commercial opportunities — tax rate differences of a few percentage points are largely unimportant if you are making a lot of money.
A better policy response would be to use any remaining fiscal space to invest in a serious productivity agenda. This would include mechanisms for increasing investment in infrastructure, skills, research and innovation, alongside incentives to firms to adopt technologies to increase productivity and achieve net zero targets. A £100bn investment in those areas would be transformative for the UK and have far more impact than the same amount in tax cuts to high earners and corporations. Markets would react a lot more favourably as well.
Updated
The former Bank of England deputy governor, Baroness Minouche Shafik, has also weighed into the debate, saying the UK government’s plan is both bad economics and a lost opportunity.
Now director of the London School of Economics and Political Science, she wrote in the Financial Times:
TThe UK economy has two urgent problems. The first is a cost of living crisis fuelled by dramatic shifts in the supply and demand for goods — particularly energy — in a time of war, plague and other trade disruptions. The second is more than a decade of low growth and productivity, or what the Economy 2030 Inquiry memorably calls “Stagnation Nation”.
With the highest inflation rate in the G7, growth in labour productivity well below the OECD average, stagnating real wages since 2010 and a host of other terrible economic indicators, it is no surprise that the Bank of England projects British households are facing the biggest collapse in living standards since such records were first kept 60 years ago.
We should let the BoE get on with doing its job of raising interest rates to fight inflation. This is not the time to do anything that might undermine central bank independence, which has delivered the low and stable inflation that we have all benefited from. A massive fiscal expansion and a collapsing pound just make the BoE’s job harder and will mean that interest rates have to rise even more to control prices.
In a good society we should provide the greatest cushion to those who need it most. The energy price cap is a very expensive response (to the tune of about £100bn) that provides support to many that do not need it and reduces incentives to make progress on climate change. Instead of a cap, the government should provide a universal lifeline tariff for energy consumption up to a certain level to protect the poorest households and small businesses, and let those who consume more pay a market price. This would cost less, help everyone and maintain incentives to use energy more efficiently.
Updated
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 current 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.”
Updated
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.
Updated
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.
Updated
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].
Updated
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.
Updated
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
Updated
