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The Bank of England has launched a temporary bond-buying programme as it takes emergency action to prevent “material risk” to UK financial stability.

It revealed that it would buy as many long-dated government bonds as needed between now and 14th October in a bid to stabilise financial markets in the wake of the mayhem that followed the government’s mini-budget last Friday.

In addition to the plunge in the value of the pound, it has also seen investors demand a greater rate of return for UK government bonds – essentially IOUs.

That is because the level of borrowing required to fund the government giveaway, including tax cuts and energy aid for households and businesses, shocked the market which immediately questioned the sustainability of the public finances.

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What this action is aimed at doing is tackling consequences of rising yields, in this instance a liquidity crunch facing pension funds.

WHY THE BANK OF ENGLAND HAS ACTED


 Ian King

Ian King

Business presenter

@iankingsky

There are some very, very specific reasons why the Bank of England is intervening in this particular asset class in long-dated gilts – that’s gilts of a 20 to 30 year duration.

It affects traditional pension funds where a retiree is guaranteed a certain payout at their retirement based on their final salary when they retire.

Now, a lot of these funds use long-dated gilts as part of their investments and what has been happening over recent days is a lot of the investment funds have been asking pension funds to post more collateral – to put up cash.

It has been reported in The Times that actually these cash calls have been running into tens of billions of pounds since the beginning of the week because of this spike in long-dated gilt yields.

That is why the Bank of England is specifically targeting that with this gilt intervention.

It is aimed at seeing off a crisis that’s potentially starting to emerge in pension funds.

The Bank said in a statement: “Were dysfunction in this (long-dated bond) market to continue or worsen, there would be a material risk to UK financial stability.

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“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”

The programme marked the Bank’s first policy intervention as it battles to bring down inflation and ease the cost of living crisis. Its chief economist signalled on Tuesday that a “significant” rise in Bank rate was also likely ahead.

The government’s growth plan is only seen as adding inflationary pressure to the economy, leaving it at loggerheads with the Bank’s mandate.

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‘Crisis’ already for Truss government

The Bank said the bond purchases, which would be fully covered by the Treasury in the event of any losses, would be sold back once market conditions had stabilised.

The announcement certainly had an immediate effect on the market.

Data showed that 30-year bond yields fell back to 4.3%, having risen to levels above 5% not seen since 2022 earlier in the day. There were similar falls for 20-year yields.

Those for ten-year bonds also fell back below 4% from 4.6%.

Stock markets, which had endured widespread falls Europe-wide amid recession fears, erased some of their losses.

The FTSE 100 had ben almost 2% down but was just 0.8% lower on the day just before 1pm.

The pound, however, was a cent and a half down versus the dollar to stand at $1.0578 and a cent lower against the euro.

The single European currency was also suffering against a resurgent US currency.

In addition to its bond-buying action, the Bank said it would postpone the start of its efforts to unwind the sale of bonds it acquired through financial crisis and COVID crisis era quantitative easing.

The Bank had planned to reduce its £838bn of gilt holdings by £80bn over the next year.

Neil Wilson, chief markets analyst at Markets.com, said the Bank’s move followed evidence of “severe liquidity stress”.

This would have been particularly evident for pension funds who have faced demands for additional cash to cover off rising yields.

“The question is whether (this Bank action) acts to stabilise longer-term or if the market retests the Bank’s resolve”, he wrote.

“We’re now seeing the Bank go toe-to-toe with the market and this might not lead to any decrease in volatility”, he warned.

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Police release update on Bob Vylan Glastonbury investigation

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Police release update on Bob Vylan Glastonbury investigation

Police say they have interviewed a man over comments made during punk-rap duo Bob Vylan’s set at Glastonbury.

A man in his mid-30s attended a voluntary interview with officers on Monday, Avon and Somerset Police said.

The outspoken punk duo sparked controversy with their performance at Glastonbury in June, when frontman Bobby Vylan led a chant of “death, death to the IDF” on stage.

Pic: PA
Image:
Pic: PA

Police said they had consulted the Crown Prosecution Service and received legal advice on the investigation in October.

“It has been important for us to have a full understanding of any legal precedents, which is a complex process, and therefore over the past couple of months we have been seeking early legal advice from the Crown Prosecution Service (CPS),” the force said in a statement.

“Following a review of the advice, a voluntary police interview was arranged to help us progress our enquiries… The matter has been recorded as a public order incident while we continue to investigate and consider all relevant legislation.

“Voluntary police interviews are commonly used in investigations where an individual agrees to attend and an arrest is not considered necessary, for example on the grounds of public safety or for the preservation of evidence. Attendees are interviewed under caution and have the same legal rights as anybody who is arrested.”

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Bob Vylan’s set at Glastonbury was live-streamed by the BBC as part of its coverage of the festival, leading to fierce criticism of the corporation.

The BBC’s Executive Complaints Unit has since found the broadcast breached editorial standards related to harm and offence.

However, the unit’s findings cleared the corporation of breaching its guidelines relating to material that is likely to encourage or incite crime.

Following the performance, the BBC issued an apology to viewers, especially the Jewish community, and promised to take action to “ensure proper accountability”.

It also said it would no longer live broadcast “high risk” performances.

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Sky News joins police raid on Turkish barbershop – and all is not as it appeared

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Sky News joins police raid on Turkish barbershop - and all is not as it appeared

In a small town in Suffolk, a team of police officers walk into a Turkish barbershop.

It’s clean and brightly painted, the local football team’s shirt displayed on one wall. Two young men, awaiting customers, hair and beards immaculate, tell officers they commute to work here from London.

Step through the door at the back of the shop and things look very different.

In a dingy stairwell, a bed has been crammed on to a landing, and a sofa just big enough to sleep on is squeezed under the stairs. The floor and steps are covered with empty pizza boxes, food containers and drink bottles. There’s a pair of socks on the floor and a T-shirt on the bed. An unopened prescription sits on a table.

At least one person is clearly living here, but possibly not by choice.

“This could be linked to exploitation, this could be linked to some forms of modern slavery,” says John French, the modern slavery vulnerability advisor for Suffolk Constabulary.

“You have to ask yourself when you come across this sort of situation, why would someone want to live in these sorts of conditions?”

John French speaks to Paul Kelso
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John French speaks to Paul Kelso

Behind a second door, this one padlocked, is a second room. This one cleaner, but clearly not safe.

Phrases in Turkish and English have been scribbled on post-it notes stuck to the wall and officers find a driving licence with a local address.

“Judging by the state of the room, this could be an ‘Alpha’ living in here,” says Mr French.

“An ‘Alpha’ is someone who’s previously been exploited,” he explains. “They have been given a little bit of trust and act like a kind of supervisor. They are very important to us, because we want to get them away from others before they can influence them.”

A brand-new Audi SUV is parked at the back.

What’s going on here?

We are in Haverhill, a small town in Suffolk bypassed by the rail network and the prosperity enjoyed elsewhere in the county, its central street bearing the familiar markers of town-centre decline.

There’s a Costa, a Boots, a branch of Peacocks, and several pubs and cafes, but they are punctuated by “cash intensive” businesses, including barbers, vape stores and takeaways, and several vacant premises that stand out like missing teeth.

It’s the cash-intensive businesses that have brought the attention of police, these local raids part of the National Crime Agency’s (NCA’s) Operation Machinize, targeting money laundering, criminality and immigration offences hidden in plain sight on high streets across England.

There are 17 premises of interest in Haverhill alone, among more than 2,500 sites visited since the start of October, resulting in 924 arrests and more than £2.7m of contraband seized.

In a single block of five shops on the High Street, four are raided. A sweet shop yields a haul of smuggled cigarettes stashed in food delivery boxes.

In the Indian restaurant three doors down, a young Asian man is interviewed via an interpreter dialling in on an officer’s phone. They establish his student visa has been revoked, and he has had a claim for asylum rejected.

The aim is to disrupt criminality using any means possible, be they criminal or civil. Criminal or not, the living conditions at the barbers are likely to fall foul of planning and building regulations enforceable with penalties including fines and closure, so officials from the council and fire safety are on hand.

Trading Standards are here to handle counterfeit goods seizures, and immigration officers are on hand to check the status of those questioned, pursuing anyone without permission to be in the UK.

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‘A full spectrum of criminality’

Sal Melki, the NCA’s deputy director of financial crime, explains why the agency is targeting apparently small operations.

“We’re finding everything from the laundering of millions of pounds into high-value goods like really expensive watches, through to the illicit trade of tobacco and vapes, and people that have been trafficked into the country working in modern slavery conditions. We’re seeing a full spectrum of criminality.

“We want to disrupt them with seizures, arrests, and prosecutions and make sure bad businesses are replaced with successful, thriving businesses that make us all feel safer and more prosperous.”

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The last visit is to a small supermarket. Through the back door is another hidden bedroom, this one not much larger than a broom cupboard, with a makeshift bed made from a sheet of plywood and a duvet.

The man behind the counter, who says he’s from Brazil via Pakistan, claims not to live in the shop, but his luggage is in a storeroom. He’s handcuffed and questioned by immigration officers, and admits working illegally on a visitor visa.

“If he is proven to be working illegally he’ll be taken to a detention centre and administratively removed,” an immigration officer tells me. “That’s not the same as deportation, the media always gets that wrong. He’ll be given the chance to book his own ticket, and if not, he’ll be removed.”

Shortly afterwards, he’s put in a police car, his large red suitcase squeezed on to the front seat, and driven away.

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Unemployment rate jumps to highest level since late 2020 ahead of budget

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Unemployment rate jumps to highest level since late 2020 ahead of budget

The UK’s jobless rate has risen to a level not seen since late 2020, according to official figures released ahead of the budget.

The Office for National Statistics (ONS) reported a figure of 5% covering the three months to September – up from 4.8% reported last month. It was a larger leap than economists had predicted, and the ONS said that men were worst affected by the shift.

It leaves the jobless rate at its highest level since December 2020-February 2021.

It had stood at 4.1% when Labour took office last year.

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There was no better news for Chancellor Rachel Reeves in wider, experimental, HMRC data released by the ONS, which showed a 32,000 decline in payrolled employment during October.

That suggested a pause to a more recent trend of declines slowing since sharp falls first witnessed in the spring of this year.

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It was April when measures introduced in Ms Reeves’s first budget came into effect, with hikes in minimum pay and employer national insurance contributions hammering employment and investment sentiment in the private sector.

It also coincided with peak US trade war uncertainty as Donald Trump ramped up his tariffs.

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Where Reeves stands on tax rises

ONS director of economic statistics Liz McKeown said of the data: “Taken together these figures point to a weakening labour market.

“The number of people on payroll is falling, with revised tax data now showing falls in most of the last 12 months.

“Meanwhile the unemployment rate is up in the latest quarter to a post pandemic high. The number of job vacancies, however, remains broadly unchanged.

“Wage growth in the private sector slowed further, but we continue to see stronger public sector pay growth, reflecting some pay rises being awarded earlier than they were last year.”

In good news, the overall slowing in the pace of wage growth and weakening jobs market should help bolster the case for an interest rate cut by the Bank of England next month, assuming inflationary pressures continue to ease after last week’s rate hold.

The ONS figures were released as the clock ticks down to the chancellor’s second budget due on 26 November.

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The state of UK economy ahead of budget

Ms Reeves used an event in Downing Street last week to prepare the ground for a painful series of measures that are expected to be only partly offset by some announcements to keep Labour MPs onside, as she stares down a black hole in the public finances believed to be in the region of £30bn.

She has signalled a break from Labour’s manifesto tax pledge not to raise income tax, national insurance or VAT, on the grounds that the world has changed since that promise was made.

The chancellor’s gripes include Brexit and the effects of the US trade war.

Nevertheless, a spending priority would appear to be the lifting of the two-child benefit cap. That would take an estimated 350,000 children out of poverty, according to the Child Poverty Action Group.

Liberal Democrat Treasury spokesperson, Daisy Cooper, said of the employment data: “Surely the writing is on the wall now for the chancellor’s jobs tax.

“Everyone except Rachel Reeves seems to have woken up to the fact that forcing small businesses to pay more in tax for giving people jobs would damage job opportunities. Now the proof is staring her in the face.

“The government must reverse their damaging national insurance hike at the budget, and commit to saving the small businesses who employ millions in Britain and are at risk of collapse, if they’re to have any hope of reversing today’s concerning trend.”

The Conservatives accused Ms Reeves of presiding over a “high-tax, anti-business” agenda.

Secretary of State for Work and Pensions, Pat McFadden, said: “Over 329,000 more people have moved into work this year already, but today’s figures are exactly why we’re stepping up our plan to Get Britain Working.

“We’ve introduced the most ambitious employment reforms in a generation to modernise jobcentres, expand youth hubs and tackle ill-health through stronger partnerships with employers.

“And this week we’re going further by launching an independent investigation that will bolster our drive to ensure all young people are earning or learning.

“We’re backing businesses to grow and create jobs by cutting red tape, signing trade deals and securing hundreds of billions in investment, which helped make the UK the fastest growing economy in the G7 in the first half of this year.”

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