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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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Car manufacturers fined £461m for collusion

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Car manufacturers fined £461m for collusion

Major car manufacturers and two trade bodies are to pay a total of £461m for “colluding to restrict competition” over vehicle recycling, UK and European regulators have announced.

The UK’s Competition and Markets Authority (CMA) said they illegally agreed not to compete against one another when advertising what percentage of their cars can be recycled.

They also colluded to avoid paying third parties to recycle their customers’ scrap cars, the watchdog said.

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It explained that those involved were BMW, Ford, Jaguar Land Rover, Peugeot Citroen, Mitsubishi, Nissan, Renault, Toyota, Vauxhall and Volkswagen.

Mercedes-Benz, was also party to the agreements, the CMA said, but it escaped a financial penalty because the German company alerted it to its participation.

The European Automobile Manufacturers’ Association (Acea) and the Society of Motor Manufacturers & Traders (SMMT) were also involved in the illegal agreements.

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The CMA imposed a combined penalty of almost £78m while the European Commission handed out fines totalling €458m (£382.7m).

The penalties were announced at a time of wider turmoil for Europe’s car industry.

Manufacturers across the continent are bracing for the threatened impact of tariffs on all their exports to the United States as part of Donald Trump’s trade war.

Within the combined fine settlements of £77.7m issued by the CMA, Ford was to pay £18.5m, VW £14.8m, BMW £11.1m and Jaguar Land Rover £4.6m.

Lucilia Falsarella Pereira, senior director of competition enforcement at the CMA, said: “Agreeing with competitors the prices you’ll pay for a service or colluding to restrict competition is illegal and this can extend to how you advertise your products.

“This kind of collusion can limit consumers’ ability to make informed choices and lower the incentive for companies to invest in new initiatives.

“We recognise that competing businesses may want to work together to help the environment, in those cases our door is open to help them do so.”

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Customers ‘protected’ as household energy supplier exits market

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Customers 'protected' as household energy supplier exits market

A household energy supplier has failed, weeks after it attracted attention from regulators.

Rebel Energy, which has around 80,000 domestic customers and 10,000 others, had been the subject of a provisional order last month related to compliance with rules around renewable energy obligations.

The company’s website said it was “ceasing to trade” but gave no reason.

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Industry watchdog Ofgem said on Tuesday that those affected by Rebel’s demise did not need to take any action and would be “protected”.

Customers, Ofgem said, would soon be appointed a new provider under its supplier of last resort (SoLR) mechanism.

This was deployed widely in 2021 when dozens of energy suppliers collapsed while failing to get to grips with a spike in wholesale energy costs.

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The last supplier to go under was in July 2022.

Ofgem said new rules governing supplier business practices since then had bolstered resilience.

These include minimum capital requirements and the ringfencing of customer credit balances.

The exit from the market by Bedford-based Rebel was announced on the same day that the energy price cap rose again to take account of soaring wholesale costs between December and January.

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Tim Jarvis, director general for markets at Ofgem, said: “Rebel Energy customers do not need to worry, and I want to reassure them that they will not see any disruption to their energy supply, and any credit they may have on their accounts remains protected under Ofgem’s rules.

“We are working quickly to appoint new suppliers for all impacted customers. We’d advise customers not to try to switch supplier in the meantime, and a new supplier will be in touch in the coming weeks with further information.

“We have worked hard to improve the financial resilience of suppliers in recent years, implementing a series of rules to make sure they can weather unexpected shocks. But like any competitive market, some companies will still fail from time to time, and our priority is making sure consumers are protected if that happens.”

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Harrods challenges survivors’ law firm’s compensation cut

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Harrods challenges survivors' law firm's compensation cut

Harrods is urging lawyers acting for the largest group of survivors of abuse perpetrated by its former owner to reconsider plans to swallow a significant chunk of claimants’ compensation payouts in fees.

Sky News has learnt that KP Law, which is acting for hundreds of potential clients under the banner Justice for Harrods, is proposing to take up to 25% of compensation awards in exchange for handling their cases.

In many cases, that is likely to mean survivors foregoing sums worth of tens of thousands of pounds to KP Law, which says it is working for hundreds of people who suffered abuse committed by Mohamed al Fayed.

Mohamed al Fayed. File pic: PA
Image:
Mohamed al Fayed. File pic: PA

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Under a redress scheme outlined by the London-based department store on Monday, which confirmed earlier reports by Sky News, claimants will be eligible for general damages awards of up to £200,000, depending upon whether they agree to a psychiatric assessment arranged by Harrods.

In addition, other payments could take the maximum award to an individual under the scheme to £385,000.

A document published online names several law firms which have agreed to represent Mr al Fayed’s victims without absorbing any of their compensation payments.

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KP Law is not among those firms.

Theoretically, if Justice for Harrods members are awarded compensation in excess of the sums proposed by the company, KP Law could stand to earn many millions of pounds from its share of the payouts.

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‘Many more’ likely abused by Fayed

A Harrods spokesperson told Sky News on Tuesday: “The purpose of the Harrods Redress Scheme is to offer financial and psychological support to those who choose to enter the scheme, rather than as a route to criminal justice.

“With a survivor-first approach, it has been designed by personal injury experts with the input of several legal firms currently representing survivors.

“Although Harrods tabled the scheme, control of the claim is in the hands of the survivors who can determine at any point to continue, challenge, opt out or seek alternative routes such as mediation or litigation.

“Our hope is that everyone receives 100% of the compensation awarded to them but we understand there is one exception among these law firms currently representing survivors who is proposing to take up to 25% of survivors’ compensation.

“We hope they will reconsider given we have already committed to paying reasonable legal costs.”

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Further claims against al Fayed

Responding to the publication of the scheme on Monday, KP Law criticised it as inadequate, saying it “does not go far enough to deliver the justice and accountability demanded by our clients”.

“This is not solely a question of compensation but about justice and exposing the systematic abuse and the many people who helped to operate it for the benefit of Mohamed al Fayed and others.”

Seeking to rebut the questions raised by Harrods about its fee structure, KP Law told Sky News: “KP Law is committed to supporting our clients through the litigation process to obtain justice first and foremost as well as recovering the maximum possible damages for them.

“This will cover all potential outcomes for the case.

“Despite the Harrods scheme seeking to narrow the potential issues, we believe that there are numerous potential defendants in a number of jurisdictions that are liable for what our clients went through, and we are committed to securing justice for our client group.

“KP Law is confident that it will recover more for its clients than what could be achieved through the redress scheme established by Harrods, which in our view is inadequate and does not go far enough to compensate victims of Mr al Fayed.”

The verbal battle between Harrods and KP Law underlines the fact that the battle for compensation and wider justice for survivors of Mr al Fayed remains far from complete.

The billionaire, who died in 2023, is thought to have sexually abused hundreds of women during a 25-year reign of terror at Harrods.

He also owned Fulham Football Club and Paris’s Ritz Hotel.

Harrods is now owned by a Qatari sovereign wealth fund controlled by the Gulf state’s ruling family.

The redress scheme commissioned by the department store is being coordinated by MPL Legal, an Essex-based law firm.

Last October, lawyers acting for victims of Mr al Fayed said they had received more than 420 enquiries about potential claims, although it is unclear how many more have come forward in the six months since.

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