Bank of England announces new emergency bond-buying plan

Bank of England announces emergency bond-buying plan in response to turbulence in Gilt market

  • Officials taking action again after Chancellor Kwasi Kwarteng’s mini-Budget 
  • The Institute for Fiscal Studies has warned of £60billion spending cuts is needed
  • The government’s ‘medium-term fiscal plan’ will now be published on October 31
  • The IFS warned Kwasi Kwarteng may have to cut departmental spending by 15% 

The Bank of England pushed the panic button again today and said it will further bolster its emergency bond-buying plan, warning an ongoing rout in the gilts market poses a ‘material risk to UK financial stability’. 

Officials have acted again this morning after taking action in September after Chancellor Kwasi Kwarteng’s mini-Budget sent the gilt market into a tailspin and wreaked havoc on final salary pension funds. 

Deputy Prime Minister Therese Coffey appeared on TV minutes after the Bank of England’s statement and said she was not aware of the Bank’s fresh action.

It came as the Institute for Fiscal Studies warned of £60billion spending cuts to get the UK’s finances under control.

Despite the Old Lady of Threadneedle Street stepping in again this morning, Therese Coffey has insisted the UK’s public finances are in a ‘good state’.

Officials at the Bank of England have acted again this morning after taking action in September after Chancellor Kwasi Kwarteng’s mini-Budget sent the gilt market into a tailspin and wreaked havoc on final salary pension funds

Ms Coffey denied that Chancellor Kwasi Kwarteng brought his medium-term fiscal plan forward because the markets were spooked.

She told Sky News: ‘I think he decided we’re in a good state and we’ll continue to discuss this across Government and with Parliament over the few weeks ahead.’

Ms Coffey was not aware of the Bank of England’s fresh action to further bolster its emergency bond-buying plan as it warned an ongoing rout in the gilts market poses a ‘material risk to UK financial stability’.

Kwasi Kwarteng will have to slash public spending by £60 billion to bring government borrowing under control, a report warns today.

In a fresh U-turn yesterday, the Chancellor announced he will rush forward a major economic statement designed to show he is serious about tackling the Government’s towering debts.

The so-called ‘medium-term fiscal plan’ will now be published on October 31, just days before the Bank of England meets on November 3 to discuss a possible big rise in interest rates.

But despite the Halloween Budget, government borrowing costs continued to rise yesterday.

Today’s report by the Institute for Fiscal Studies (IFS) warns that Mr Kwarteng may have to cut spending in most departments by 15 per cent to balance the books.

Kwasi Kwarteng will have to slash public spending by £60 billion to bring government borrowing under control, a report warns today (pictured at the Conservative Party Conference on October 3)

It says this would require cuts totalling more than £60 billion – and questions if the Government has the capacity to drive through spending restraint on this scale, saying it risks ‘stretching credulity to breaking point’.

The IFS report finds that increasing benefits in line with earnings rather than inflation could raise £13 billion, while cuts to investment spending might raise a further £14 billion. 

But with the NHS and defence budgets protected, other departments would still face deep cuts, because ‘trimming the fat’ will not be enough to fill the hole in the public finances.

IFS director Paul Johnson said it was ‘just about possible’ that Mr Kwarteng would be able to get debt falling in five years. But he warned that pencilling in ‘unspecified tax cuts’ for later years would undermine his credibility. 

With ministers already struggling to persuade Tory MPs of the need to squeeze the welfare bill, Mr Kwarteng faces a race to identify potential cuts in time.

One Whitehall source said: ‘It is obvious to everyone that there are going to be some very tough decisions.’ 

Another said government departments were likely to be asked to operate within their existing budgets for now, with deeper cuts likely to be pencilled in only after the next election. 

Commons Treasury committee chairman Mel Stride welcomed Mr Kwarteng’s decision to hold a Halloween Budget, saying the plan may result in a smaller rise in interest rates, which was ‘critical to millions’ of mortgage holders.

But he warned this would be the case only if the plan ‘lands well with the markets’ ahead of the Bank’s decision. Asked whether Mr Kwarteng’s financial plans added up, Mr Stride said: ‘well, we’re about to find out’.

Today’s IFS report predicts that government borrowing will now hit almost £200 billion this year (Truss and Kwarteng pictured on October 4)

Today’s IFS report predicts that government borrowing will now hit almost £200 billion this year – double the £99 billion that was forecast at the time of the last budget in March.

Meanwhile, an analysis by investment bank Citi forecast the economy was set to grow by an average of just 0.8 per cent a year for the next five years – far short of the 2.5 per cent rate of growth the Chancellor said he wants to achieve.

The Treasury has said Mr Kwarteng’s plans will pay for themselves if they succeed in raising economic growth by 1 per cent above its forecast level.

But he now faces a battle to persuade the Office for Budget Responsibility that a series of supply side reforms in areas such as planning, energy and immigration will turbocharge growth.

Former Treasury mandarin Lord Macpherson said the scale of the fiscal challenge could force the Chancellor to revisit his tax-cutting plans. 

The crossbench peer said: ‘Unless the Government can restore economic credibility, the market response in the weeks ahead could be a whole lot worse than we have seen so far.’

Yesterday Liz Truss blocked Kwasi Kwarteng’s plan to appoint an outsider as the Treasury’s top official.

The Chancellor had been poised to install high-flying civil servant Antonia Romeo as the permanent secretary as part of plans to shake up the department’s ‘orthodox’ thinking.

Mr Kwarteng sacked the previous incumbent Sir Tom Scholar on his first day in office last month as he tried to force the Treasury to take a bolder approach to growth.

But Whitehall sources said the appointment of Mrs Romeo was overruled by the PM. Instead, civil service veteran and ‘fiscal conservative’ James Bowler was appointed yesterday.

Two other senior Treasury officials – Cat Little and Beth Russell – were appointed as Mr Bowler’s deputies in an apparent bid to reassure the financial markets of fiscal responsibility.

No 10 yesterday insisted that Mr Bowler’s appointment had been a ‘joint decision’ between the PM and Chancellor.

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