The collapse of the value of the pound in the wake of Friday’s mini-budget appears to have stalled, for now, but only thanks to market expectations that the Bank of England will still be forced to intervene.
The rout for sterling, which began after Chancellor Kwasi Kwarteng revealed a £45bn tax cut plan on top of government aid for energy bills, was a consequence of concern over the levels of borrowing required.
It essentially called in to question the confidence the market had for sustainable public finances in the UK, also pushing up the rates demanded by investors to hold UK bonds – government IOUs – which will be used to fund the growth plan.
The pound hit an all-time low versus the dollar of $1.03 early on Monday but it later recovered some lost ground and had settled around $1.08 on Tuesday.
There were three main factors behind the limited fightback.
One was a statement from the Treasury on Monday aimed at soothing nerves around Friday’s giveaways.
It revealed that Mr Kwarteng was to set out a “medium-term fiscal plan” on 23 November which would also contain independent analysis from the Office for Budget Responsibility – a check that was lacking in the mini-budget.
The second was due to a statement from the Bank of England which affirmed it would “not hesitate” to raise interest rates to prop up the value of sterling but added that it would make a full assessment at its next scheduled meeting.
The final facet can be traced across the Atlantic where the dollar – the world’s reserve currency which has strengthened significantly this year amid the economic turmoil linked to Russia’s war in Ukraine – fell back against a basket of international currencies.
Analysts cited renewed investor interest in stocks but remained cautious about the outlook as markets, already jittery at the prospect of US interest rates staying higher for longer, have been further unnerved by the upheaval for the pound and UK bond yields.
There was some relief for the government when the Treasury successfully raised £1.2bn through a bond sale on Tuesday morning.
The amount was covered 2.3 times, which Sky’s economics and data editor Ed Conway said showed there was “no shortage of appetite” for the debt.
The market volatility has been blamed for a number of mortgage providers withdrawing products from sale.
Such moves are expected to be only temporary amid the turmoil of the past few days.
Many market participants talked about a long road back to recovery for sterling because credibility had been lost.
Allan Monks, an economist at America’s largest bank JP Morgan, said the statements from the Bank and Treasury had been “measured”.
“But there is still no clear sign that the source of the problem – the government’s fiscal strategy – is being reversed or reconsidered,” he complained.
“This will need to happen before November in order to avoid a much worse outcome for the economy.”
Larry Summers, a former US Treasury Secretary, also spoke about credibility being lost and suggested that the crisis would affect London’s viability as a global financial centre.
Seema Shah, chief strategist at Principal Global Investors which manages around $500bn in assets, told the Reuters news agency: “Once a market starts to move with this kind of momentum, it’s hard to put a number on where it (sterling) will trough.
“But as an investor you take a long-term view. If you look at the UK as somewhere to invest over five years, for me that’s a no.”
Others said another factor behind sterling’s performance since Monday afternoon was that money leaving UK bonds was finding its way to the currency instead – but only because of the higher rate hike expectations.
Victoria Scholar, head of investment at Interactive Investor, said markets were pricing in an emergency rate hike with 175 basis points’ (1.75%) worth of increases by November.
“The slump in sterling could exacerbate the UK’s inflation problem, with price levels currently flirting with double digits.
“More expensive imports may add to the UK’s upward price pressures, which is likely to prompt more aggressive action from central bank policy makers.”
Teachers’ strike to go ahead after education secretary ‘squandered the opportunity’ to avoid action, union says
Talks between the education secretary and the teaching unions have failed and the biggest teachers’ strike in years will go ahead.
Last-minute talks were held by Education Secretary Gillian Keegan on Monday in a bid to resolve a teachers’ pay dispute ahead of planned strikes this week.
Members of the National Education Union (NEU) in England and Wales will now walk out on Wednesday, with more industrial action planned in the following weeks.
The strike on Wednesday is expected to encompass up to half-a-million workers, with teachers due to be joined by train drivers, civil servants, university lecturers, bus drivers and security guards from seven trade unions in what will be the biggest day of industrial action in over a decade.
The NEU has announced seven days of strikes in England and Wales in February and March, with the walkout on Wednesday expected to affect over 23,000 schools.
Mary Bousted and Kevin Courtney, joint general secretaries of the NEU, said: “Gillian Keegan has squandered an opportunity to avoid strike action on Wednesday.
“The government has been unwilling to seriously engage with the causes of strike action.
“Real-terms pay cuts and cuts in pay relativities are leading to a recruitment and retention crisis with which the education secretary so far seems incapable of getting a grip.
“Training targets are routinely missed, year on year. This is having consequences for learning, with disruption every day to children’s education.”
In a separate comment, Mr Courtney said: “I regret to say that we didn’t hear anything that enables us to say that the strike shouldn’t go ahead on Wednesday.
“There’s no offer from the secretary of state trying to bridge the gap between us.”
Meanwhile, a headteachers’ union boss has described the talks with Ms Keegan as “deeply disappointing”.
Following the meeting with the education secretary, Geoff Barton, general secretary of the Association of School and College Leaders (ASCL), said: “Parents will have been looking for the government to avert the planned strike on Wednesday.
“Instead, the government continues to talk around the issues rather than putting anything on the table which allows for any meaningful negotiation.
“It is deeply disappointing.”
Mr Barton added: “We are sorry to report that there is therefore no resolution to the dispute and the strike is set to go ahead.”
The teachers’ strike was confirmed shortly before British firefighters voted to carry out nationwide action in a dispute over pay.
About 88% of members of the Fire Brigades Union had voted in favour of strike action, on a 73% turnout, the union said.
Its members had rejected a 5% pay offer in November.
Rishi Sunak says he acted ‘decisively’ in sacking Nadhim Zahawi following tax affairs row
Rishi Sunak has insisited he acted “decisively” in sacking Nadhim Zahawi as chairman of the Conservative Party after a row over his tax affairs.
Speaking in Country Durham at the launch of his government’s emergency care plan, the prime minister defended his handling of situation and stressed his commitment to “integrity” and the need to follow proper processes.
“What I have done is follow a process, which is the right process,” he said.
“Integrity is really important to me – all of you guys want to see that government is run properly, that it is run with integrity and there’s accountability when people don’t behave in the way that they should or if something doesn’t go right, and that’s what we’ve done.”
Mr Sunak also promised he would “take whatever steps are necessary to restore the integrity back into politics”.
“The things that happened before I was prime minister, I can’t do anything about,” the prime minister said.
“What I think you can hold me to account for is how I deal with the things that arise on my watch.
“And as you’ve seen, you know, when it came to Nadhim Zahawi, I asked the independent adviser to look at it straight away, acted on his findings straight away.
“That should give you some confidence that these things matter to me, and that I will take whatever steps are necessary to restore the integrity back into politics, and you can have confidence that the process works.”
Mr Zahawi was sacked as Tory party chairman on Sunday after an ethics inquiry into the handling of his tax affairs found a “serious breach” of the ministerial code.
Mr Sunak had resisted earlier calls from opposition parties to fire Mr Zahawi following reports that he had paid a penalty as part of an estimated £4.8m settlement dispute with HMRC.
But following the conclusion of an inquiry into the matter by his new ethics adviser Sir Laurie Magnus – which found that Mr Zahawi had “shown insufficient regard for the general principles of the ministerial code” – Mr Sunak swiftly removed the former Tory chairman from his post.
Critics of Mr Sunak have said he should have acted sooner in dismissing Mr Zahawi.
But the prime minister said it was on the basis of the facts contained in Sir Laurie’s report released on Sunday morning that he was “able to make a very quick decision that it was no longer appropriate for Nadhim Zahawi to continue in government”.
The PM’s official spokesperson reiterated to reporters on Monday that Mr Zahawi’s tax penalty was not disclosed to Mr Sunak upon his appointment.
Yesterday, Labour’s deputy leader Angela Rayner and chairwoman Anneliese Dodds wrote to Mr Sunak asking him to give the public “full transparency” about what he knew about the investigation into Mr Zahawi’s tax affairs and when.
Ms Dodds described Mr Sunak as “weak” for not sacking Mr Zahawi “when this murky affair first surfaced”.
Ms Rayner added: “Rishi Sunak shouldn’t have needed an ethics adviser to tell him that Nadhim Zahawi’s position was untenable, but instead he continued to prop up the man he appointed to cabinet.”
Speaking to Sky News earlier today, shadow international trade secretary Nick Thomas-Symonds suggested the PM could have been lying about what he knew about Mr Zahawi’s tax affairs.
Asked whether he believed Mr Sunak has lied about what he knew of the matter, Mr Thomas-Symonds replied: “How could the prime minister not have known about the fact of the investigation when Mr Zahawi declared it in July?”
The row surrounding Mr Zahawi had centred on a tax bill over the sale of shares in YouGov – the polling firm he founded worth an estimated £27m – which were held by Balshore Investments, a company registered offshore in Gibraltar and linked to Mr Zahawi’s family.
Mr Zahawi had insisted he was “confident” he had “acted properly throughout”.
Liberal Democrat deputy leader Daisy Cooper has called on Mr Sunak to withdraw the Conservative whip from Mr Zahawi “if he refuses to stand down as an MP” as he is “simply not fit to represent his constituents”.
In a letter to Mr Sunak following his sacking – in which he made no apology for his actions – Mr Zahawi told the PM he can be “assured of my support from the backbenches in the coming years”.
Speaking to Sky News on Monday, health minister Helen Whately said she thought the PM followed a “fair” process when deciding to sack the former Conservative party chairman.
Major search for missing 45-year-old who vanished while walking her dog in Lancashire
A major search is under way to find a 45-year-old woman from Inskip, Lancashire, who vanished while walking her dog.
Nicola Bulley was last seen three days ago – on Friday 27 January – at around 9.15am on a towpath by the River Wyre off Garstang Road in the village of St Michael’s on Wyre.
Police say her mobile phone was found on a bench near the riverbank and they are “extremely concerned” about her, and have urged anyone with information to get in touch.
Emergency crews including Lancashire Police, Lancashire Fire and Rescue, Bowland Pennine Mountain Rescue team and the North West Underwater Search Team have joined the search.
Police dive teams, fire service drones, search dogs, helicopters and mountain rescue volunteers have been sent to the area.
Lancashire Police earlier said Ms Bulley’s dog – a brown Spaniel – was also found close to where she was last seen and hope this might help jog the memory of anyone who saw her and may have information relating to her whereabouts.
She is described as white, 5ft 3ins tall, with light brown shoulder-length hair and she speaks with an Essex accent.
Ms Bulley was last seen wearing a long black gilet jacket with a hood, black jeans and olive green ankle wellies. Her hair was tied into a ponytail.
As well as Inskip and St Michael’s on Wyre, she also has links to Thornton Cleveleys.
In an update on Monday, Superintendent Sally Riley appealed for motorists who may have been driving through the area where Ms Bulley was last seen to come forward with any dash cam footage that could help officers.
The force said it is keeping an open mind about where she may be, and detectives investigating the circumstances around her disappearance are following a number of lines of enquiry.
Chief Inspector Chris Barton said on Sunday: “Nicola has now been missing for two days and we are extremely concerned about her.
“Firstly, if anybody saw her on Friday morning and has not yet been spoken to by police, or if anybody has any other information about where she might be, please get in touch with us straight away.
“Enquiries are very much ongoing and we have a team of detectives working tirelessly to establish the circumstances around her disappearance, in addition to a large team of police officers, partner agency and volunteer groups on the ground searching the area around where she was last seen.”
He added officers are aware a large number of people from the local community have organised a search of the area, and urged them to stay safe.
The River Wyre and its banks are extremely dangerous and searching these areas presents a genuine risk to the public, the force said.
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