Money

If government bond sales by pension funds are the fundamental cause of a potential systemic crisis that could hurt us all, as the Bank of England says, why are pension funds taking so little advantage of the Bank’s offer to buy £65 billion of the bonds? And why are bond prices still falling? It seems to me the only explanation for what is happening is that margin calls on pension funds’ liability-driven investments (LDIs) – or the trillion pounds of their debt that’s secured against UK government bonds – are not, in fact, the main cause of the spike in bond yields, or at least they are only a small

Speculation has been growing that the Bank of England might announce an extension of its emergency gilt-buying programme which is set to end on Friday. Despite the Treasury moving forward its ‘medium-term fiscal plan’ announcements from November to the end of this month, gilt yields have been rising yet again this week in the lead-up to the end of the scheme. It seemed likely that the Bank’s gilt-buying programme might be extended for another two weeks as a result, in order to buy time before the Chancellor Kwasi Kwarteng’s announcement on 31 October. But tonight Andrew Bailey put that speculation to bed. Speaking at the Institute of International Finance in Washington DC, the

Production will be cut. Supplies to the rest of the world will be curbed. And inflation will rise just a little bit higher. No one ever expected the oil-cartel Opec(+), led by Saudi Arabia, to be friendly to the West, or to help out when it was needed. Even so, its decision this week to effectively side with Russia, and to make the energy crisis even worse, may quickly backfire. In reality, Opec was already in long-term decline. Picking a fight with the US will just make that worse. It was certainly the kind of news the energy markets didn’t need. Just as it was getting over the loss of Russia’s crucial

Liz Truss joins other European leaders in Prague today at the first meeting of the European Political Community. Truss’s presence is sensible, a reminder of Britain’s point that it left the EU, not Europe as a whole. It should also help relations with Emmanuel Macron given how much he has invested in this project. One of the subjects discussed will be energy. The conversation will focus on Putin’s weaponisation of energy and how to keep the lights on this winter. But the anti-Russian alliance has suffered a blow after the news that the Opec+ countries, which include Saudi Arabia and Russia, are going to cut oil production by two million

When Liz Truss and Kwasi Kwarteng entered Downing Street, laser focus was not only applied to them, but also to the free market think tanks they had worked with over the years. This evening, Kwarteng paid a visit to two of them, as the Institute of Economic Affairs and The Taxpayers’ Alliance hosted the Chancellor at Conservative party conference for one-on-one conversations. Similar to his speech yesterday, Kwarteng used the opportunity to try to take some heat out of his mini-Budget. When asked if market reaction was part of the Treasury orthodoxy he and Truss had been taking aim against for weeks, he shook his head and pointed to the

Liz Truss wants growth at 2.5 per cent. That figure will allow the UK to pay off the huge cost of her energy subsidy – predicted at around £40 billion – while also putting the public finances on a more sustainable footing. The problem is that growth is elusive. Between the financial crash and the Covid lockdowns, the UK’s average growth rate was just 1.3 per cent.  One of the few sure-fire ways to grow the economy is trade. New markets give companies the chance to grow their sales purely by matching up new consumers with goods that they want. The power to do this, to set our own trade

Liz Truss goes into her first Conservative party conference with the latest Opinium polling giving Labour a 19-point-lead and her own approval ratings down at -37 – worse than Boris Johnson’s in his final days in office. Yet despite this, the new Prime Minister used her first big sit down interview since the fallout from the not-so-mini Budget to insist that she was not for turning. Truss told Laura Kuenssberg that she stands by all the measures announced last Friday – including abolishing the 45p rate of income tax for the highest earners. The furthest Truss would go in accepting that her first fiscal event – which has spooked the markets, voters

Markets are nervous and they are right to be. The government has announced a huge, open-ended package of energy subsidies expected to cost over £100 billion but that could cost over £200 billion if energy prices rise and stay high. At the same time, the Bank of England is making large losses on its QE bond-holdings as government bond prices fall as an automatic result of current and future-expected interest rate rises – by some estimates costing potentially another £200 billion. This leaves a possible £400 billion hole in the nation’s finances. The government says it will spell out how that will be paid for in November. From a policymaking perspective

When the Liz Truss camp floated the idea of side-lining the Office for Budget Responsibility for her government’s first fiscal statement, the argument went that the announcements would be targeted at the energy crisis – and they couldn’t wait. As anticipation around the fiscal event grew, and it became clear that it would include much more than an energy update, MPs started to suspect foul play – that this was an overtly political attempt to avoid scrutiny of Kwasi Kwarteng’s growth plans and spending splurge. This suspicion is only going to grow now that the OBR has confirmed that draft forecasts were presented to the Chancellor on his first day