The governor of the Bank of England said the UK needed to “rebuild its reputation” after Liz Truss’ mini-budget left Britain with just “hours” of economic collapse.
Andrew Bailey said the Bank of England was forced to step in after September’s mini budget, which sent the pound to an all-time low.
His comments came just hours after the Bank of England raised interest rates from 2.25 percent to 3 percent to tackle soaring inflation, a move that added thousands of pounds to annual non-fixed mortgage bonds.
Asked how close Britain was to the financial crisis in September, Bailey said Channel 4 News“I think the moment we got in I can tell you the messages we were getting from the markets were hours.”
Speaking about the bank having to promise to buy £65bn of government bonds to protect pension funds, Bailey said: ‘We’ve definitely come to a point where the markets were very volatile and these were core markets, that’s the government bond market, and it’s in some ways Many are the essence of everything.
Bank of England Governor Andrew Bailey (pictured) said Britain was ‘hours’ away from economic collapse after Liz Truss mini budget
The day after Les Truss’ mini budget, the pound fell to an all-time low, forcing the Bank of England to intervene.
It has become unstable and affects for example pension funds and how they have been operating.
And our concern was that when you get into this situation, this can easily spread very quickly and then you have a huge task to get it back under control.
Therefore, we had to intervene quickly and we had to intervene decisively. This felt like, and was, a very real threat to financial stability.
Bailey also responded to criticism from government ministers after then-Business Secretary Jacob Rees-Mogg claimed that the slide on the pound was partly due to the Bank’s failure to raise interest rates faster.
‘I felt it was wrong as a note,’ said the governor, ‘I’ll be honest with you, and what I’ll say is we’ve noticed that markets are now correcting themselves, and if you ask – well what was the change in policy in the intervening period, it was a change in fiscal policy.
I’m afraid this comment is misplaced. Besides, I think there have been comments about this because of the global markets, and I really don’t think that’s the case.
“Certainly, global markets have had shocks this year, we had joint shocks, Ukraine would be an example of that, but that was particularly the case for the UK.”
Bailey also said that the UK must now restore its record of financial stability.
He added: I think the United Kingdom has to rebuild its reputation. There will be people looking at the United Kingdom, amazed at what has happened, and thus seeking to draw conclusions from it as to what will happen next.
Mr Bailey also criticized former Business Secretary Jacob Rees-Mogg (pictured)’s claim that the pound’s downturn was partly caused by the Bank’s failure to raise interest rates faster.
Now, I think there’s been a lot of stabilization over the last three weeks really. I think the markets, however, have responded to a very unstable situation and I don’t think we can be surprised by the markets’ response to those situations.
Along with the interest rate hike, the Bank of England confirmed today that the UK is indeed in a recession and will likely continue to experience an economic downturn until mid-2024.
If confirmed, it would be the longest the UK has seen since records began in the 1920s – extending well beyond the Bank’s previous forecast of 15 months.
By 2025, the bank predicts, unemployment will have jumped from 3.5 percent now to 6.5 percent.
Interest rates are now the highest since the global financial crisis in 2008 following the 7-2 decision of the Monetary Policy Committee (MPC), the eighth consecutive hike.
The increase — which followed a similar announcement by the US Federal Reserve last night — is the biggest daily move since Black Wednesday in 1992, when Britain’s decision to withdraw from the exchange rate mechanism sent markets rallying.
But the panicked rate hike on Black Wednesday lasted just one day.
The last time there was a steady increase of this magnitude was in 1989.
Borrowers with a standard £200,000 variable mortgage could see their repayments jump by over £1,000 a year.
After the lunchtime announcement, councilor Jeremy Hunt admitted the move would be “very difficult for families with mortgages across the country”.
But he said it was essential to act now and avoid bigger and more brutal steps in the future. It comes ahead of his November 17 autumn statement in which he is expected to deliver swing tax increases and spending cuts to households and businesses to fill a £50 billion spending black hole.
“The best thing the government can do, if we want to reduce these interest rate increases, is to show that we are reducing our debt,” he told broadcasters.
Families across the country must balance their accounts at home and we must do the same as the government.
However, there were glimmers of good news among the gloomy.
Bailey suggested that rates may now peak lower than expected – analysts think it is likely to be less than 5 per cent.
That means the cost of fixed-rate mortgages, which has risen north of six percent, can start to fall, helping those about to remortgage.
But he warned that this is a “difficult road ahead” for the UK and families.
He acknowledged that the eight price increases since last December are “big changes and have a real impact on people’s lives.”
But he said, “If we don’t act aggressively now, it will be worse later.”