Bank of England Governor Andrew Bailey stressed that the bank’s intervention to stabilize the British bond market was “definitely temporary” and gave pension funds three days to rebalance their assets.
“We believe that a rebalancing must be done, and my message to the concerned funds and all the companies that manage these funds is: You have three days left,” Bailey said in an interview at the Institute of International Finance in Washington.
While London is facing a chapter of acute financial instability that affects the British debt market and led to a rise in government borrowing rates, the monetary institution was forced to intervene by purchasing long-term treasury bonds “golden bonds”, as well as, in a second stage, inflation-linked bonds in a precedent for the Bank of England.
“We’ve been up all night for several days in a row trying to solve this problem,” Bailey said, acknowledging that monetary authorities face the challenge of two contradictory steps.
“We’re facing two things that go in opposite directions. We were on the path of monetary tightening, selling bonds and raising interest rates,” he said, like most central banks to fight inflation. “At the same time, we had to decide to buy bonds to ensure financial stability,” he added.
“We have to be able to do both, we have to explain it. Now pension funds have a window to rebalance” their resources, he said.
Treasury bonds are very desirable from British pension funds. However, with their value declining, these funds have to re-inject significant liquidity to match their assets with their liabilities.
In a statement published on Tuesday, the British Association of Pension Funds called on the Bank of England to give it more time.
The association said that “the period of bond purchases” by the central bank “should not end so quickly”. “A lot of people think it should be extended until October 31 or even later,” she said, rather than Friday. Asked regarding UK fiscal policy, Bailey said it was “important” for the government to rely on the forecasts of the Balance Sheet Office, the independent public financial watchdog, because fiscal policy needed a “framework”.
The London plan to support the economy presented on September 23 angered the markets, which feared the disruption of British public finances.
Immediately following Bailey’s comments, the pound fell sharply.
The Bank of England has warned that some British households may face as much pressure as they did before the 2008 financial crisis, as they were before the 2008 financial crisis, if economic conditions continue to be difficult.
“It will be a challenge for some households in dealing with the expected rises in commodity costs along with high interest rates,” the Central Bank’s Financial Policy Committee said in its quarterly report on the fiscal policy summary issued yesterday.
According to “Al German”, the bank added that while families are in a stronger position than they were before 2008, if the rise in mortgage financing costs continues, some may face pressures regarding mortgages and other costs, similar to the stage, which was before the financial crisis. . Corporate profits will face pressure from rising credit costs, the bank said.
In addition, British Prime Minister Liz Terrasse pledged yesterday not to cut public spending while sticking to the mini-budget that included tax cuts introduced last month and caused turmoil in the British market.
In her first public appearance in Parliament since September 23 when the controversial plan was presented, Truss said she was “absolutely” committed to what she pledged during her campaign to take over the leadership of the Conservative Party by maintaining current spending. With the currency, bond and other markets fearing extra borrowing to offset the tax cuts, fears grew that the Terrace would cut government budgets and return to the unpopular policy of austerity that prevailed a decade ago.
But Trace insisted that would not happen. “What we are going to make sure is that the debt goes down in the medium term,” she told MPs during her second “Questions to the Prime Minister” session in the House of Commons. “We will not do this by reducing public spending, but by spending public money well,” she added. She said her policies would “protect our economy”.
The Trust also insisted that its controversial economic package announced by Treasury Secretary Kwasi Quarting, which includes cuts in several different taxes, will lead to “higher growth and lower inflation”.
But the initial impact of that plan was negative on various levels, as the pound fell to unprecedented levels once morest the dollar, while government borrowing and mortgage interest escalated. The Bank of England had to make several emergency interventions in the bond markets, while the economy unexpectedly contracted in August following recording weak growth the previous month amid the cost of living crisis and rising energy bills.
Labour’s leader Keir Starmer accused Truss of being “lost in denial” and “shirking responsibility” because it refused to acknowledge the economic ramifications of its policies, instead blaming external factors such as the war in Ukraine for disrupting markets.
Media reports said that the mini-budget that has already been relaxed with the cancellation of plans to abolish the higher tax rate might be subject to further adjustments.
But a TRACE spokesman denied this information and told reporters, “We are committed to the measures that were set out in the growth plan.” He added that Trace was “confident that this is the right approach to take to ensure that low or no growth is avoided.”
Official data showed yesterday that the British economy shrank 0.3 percent in August compared to July due to weak manufacturing and maintenance work that affected the oil and gas sector.
A Archyde.com poll of economists had forecast zero growth for the British economy in August.
“The economy contracted in August with both production and services declining, and with a slight downward revision to July growth, the economy has contracted in the past three months as a whole,” said Grant Fitzner, chief economist at Britain’s National Statistics Office. Fitzner highlighted a “significant decline” in the manufacturing sector and a higher-than-normal level of maintenance work in the oil and gas sector in the North Sea, which had slowed production.
