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LONDON , Oct 12 (AP) \u2014 Britain\u2019s economy faced new shocks Wednesday after the Bank of England ruled out extending an emergency debt-buying plan \u2013 and the government appeared to blame the independent central bank for the U.K.\u2019s economic turmoil.<\/p>\n
The pound currency sank against the dollar and the cost of government borrowing rose after Bank of England Governor Andrew Bailey confirmed that a program to buy government bonds, introduced last month to stabilize financial markets, will end Friday as scheduled.<\/p>\n
\u201cMy message to the (pension) funds involved \u2013 you\u2019ve got three days left now. You have got to get this done,\u201d Bailey said late Tuesday in Washington, where he is attending the annual meeting of the Institute of International Finance.<\/p>\n
Analysts say pension funds had lobbied the central bank to extend the program by two weeks.<\/p>\n
The pound fell by almost 1% to just below $1.10 after Bailey spoke, before rallying slightly after the Financial Times reported that the bank was, after all, prepared to keep buying bonds beyond the Friday deadline.<\/p>\n
The bank quashed that report, saying its \u201ctemporary and targeted purchases\u201d of government bonds \u201cwill end on October 14.\u201d<\/p>\n
The U.K. 30-year yield on British government bonds, known as gilts, passed 5% on Wednesday morning amid growing unease among traders. Gilt yields, which rise as prices fall, are back close to the levels which led to the bank\u2019s intervention last month.<\/p>\n
The central bank took emergency action after the British government on Sept. 23 announced plans for 45 billion pounds ($50 billion) in tax cuts without saying how it would pay for them. The announcement spooked financial markets and sent the pound plunging to a record low of $1.03 against the dollar.<\/p>\n
The Bank of England intervened to prop up the bond market and stop a wider economic crisis that particularly threatened pension funds.<\/p>\n
On Tuesday the bank broadened its intervention, saying it will now buy inflation-linked securities \u2014 which offer protection from inflation \u2014 as well as conventional government bonds as it seeks to \u201crestore orderly conditions\u201d in the market.<\/p>\n
The market turmoil has caused pain for many Britons \u2014 especially prospective homebuyers, who have seen mortgage rates soar on the increased prospect of a big rate hike from the central bank when it meets next month.<\/p>\n
It has also put intense political pressure on the Conservative government of Prime Minister Liz Truss, who took office in early September with a promise to boost growth through tax cuts and deregulation.<\/p>\n
Friction has grown between the government and the independent Bank of England. Business Secretary Jacob Rees-Mogg suggested Wednesday that market turbulence was primarily the result of the bank\u2019s failure to raise interest rates as quickly as its U.S. counterpart, the Federal Reserve.<\/p>\n
He said the market response was \u201cmuch more to do with interest rates than it is to do with a minor part of fiscal policy.\u201d<\/p>\n
Many economists dispute that view and blame the government\u2019s botched budget announcement for the mayhem. The announcement of 45 billion pounds of tax cuts \u2014 without an independent economic assessment from the Office for Budget Responsibility \u2014 came on top of a 60 billion-pound plan to cap energy prices to help shield homes and businesses from steep price rises driven by Russia\u2019s invasion of Ukraine.<\/p>\n
\u201cYou\u2019ve got a sidelined financial watchdog, you\u2019ve got lack of a medium-term fiscal plan, one of the largest unfunded tax cuts we\u2019ve seen since the early 1970s \u2014 it was kind of the straw that broke the camel\u2019s back,\u201d said Sanjay Raja, chief U.K. economist for Deutsche Bank.<\/p>\n
In an effort to ease concerns, Treasury chief Kwasi Kwarteng said Monday that he would release the government\u2019s detailed fiscal plans on Oct. 31, three weeks earlier than scheduled.<\/p>\n
But the government still hasn\u2019t detailed how it will pay for its tax cuts, except to say faster economic growth will increase tax revenue. Many economists say deep public spending cuts are inevitable unless the government reverses some of its tax cuts.<\/p>\n
Truss said Wednesday that she would \u201cabsolutely\u201d stick to her pledge not to cut public spending.<\/p>\n
During the prime minister\u2019s weekly question and answer session in the House of Commons, she defended her economic plans, saying \u201cthe major part of the mini-budget\u201d had been the measures to limit people\u2019s energy bills.<\/p>\n
But opposition Labour Party leader Keir Starmer accused the government of going \u201con a borrowing spree, sending mortgage rates through the roof.\u201d<\/p>\n
Investors are concerned that the government\u2019s plans will increase public debt and fuel further inflation, which is already running at a near 40-year high of 9.9%.<\/p>\n
In more bad financial news, the Office for National Statistics said Wednesday that Britain\u2019s economy contracted by 0.3% in August, down from 0.1% growth in July, with manufacturing and consumer services both recording falls.<\/p>\n
The office\u2019s chief economist, Grant Fitzner, said that the economy also contracted over the quarter to August.<\/p>\n
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LONDON , Oct 12 (AP) \u2014 Britain\u2019s economy faced new shocks Wednesday after the Bank of England ruled out extending an emergency debt-buying plan \u2013 and the government appeared to blame the independent central bank for the U.K.\u2019s economic turmoil. The pound currency sank against the dollar and the cost of government borrowing rose after […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":{"0":"post-202563","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-world"},"_links":{"self":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts\/202563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/comments?post=202563"}],"version-history":[{"count":0,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts\/202563\/revisions"}],"wp:attachment":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/media?parent=202563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/categories?post=202563"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/tags?post=202563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}