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 14 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.
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.
“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
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1:38
Senior Tory blames mini-budget for turmoil
City minister Andrew Griffith denied that the government should take responsibiity for the crisis.
“We are seeing the same impact of Putin’s war in Ukraine cascading through things like the cost of energy, some of the supply side implications of that, and that’s impacting every major economy and just to save every major economy, you’re seeing interest rates going up as well.
“Every major economy is dealing with exactly the same issues,” he told Sky’s economics editor Ed Conway.
“They [the bank] have made a targeted and timely intervention in the market. That’s their decision, but they’ve done so working very closely with the chancellor,” he added.
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.
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 2002 earlier in the day. There were similar falls for 20-year yields.
Those for 10-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 been 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 shortly after the announcement, to stand at $1.0578, and a cent lower against the euro. It later moved back towards $1.07 as market surprise at the intervention eased.
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.”
An amber warning for snow and ice, with the risk of freezing rain, covers most of Wales and central England until midday on Sunday.
Freezing rain, which makes up what are commonly known as ice storms in North America, is a rarity in the UK because the conditions for it are quite specific, according to the Met Office.
But what is it and how is it different to snow?
Freezing rain is rainfall that has become “supercooled” as it falls from the sky.
It starts when snow, ice, sleet or hail high up in the atmosphere melts into rain when it falls through the layers of warmer air below.
If the rain then passes through a sub-zero layer of air just above the ground, it can remain liquid and instead become “supercooled”. This is the key to freezing rain.
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Supercooled water will freeze on impact – forming a clear layer of ice on cold surfaces such as trees, roads and power lines.
Why is it dangerous?
It’s once it hits the surface and turns to ice that it canpose a real threat.
The ice is very clear, often referred to as black ice, because it is so difficult to see, making it treacherous for pedestrians and drivers.
Sky News meteorologist Kirsty McCabe explains: “The supercooled rain hits the ground and freezes instantly on impact, and that creates a thin layer of ice, also known as glaze, and it’s clear, so you can’t see the ice, which makes it really treacherous.”
If it hits power lines or tree branches, depending on how much rain there has been, the weight of the ice can cause them to break off because they can’t support the weight.
It can also make it difficult to open your car door if there is enough of it.
From 6pm on Saturday to midday on Sunday an amber warning for snow and ice, with the risk of freezing rain, covers most of Wales and central England, including the Midlands and Liverpool and Manchester in the North West.
But McCabe says it’s Wales where people should be particularly wary of freezing rain.
What precautions should people take?
The best thing people can do is take extra care when travelling. As it is so hard to see, it’s difficult to judge just how icy road surfaces are.
The RAC says freezing rain is arguably the most treacherous of all conditions for motorists.
They urge people not to drive unless necessary, but say those who do need to should check they have plenty of fuel and oil and check their tyre treads.
They also encourage drivers to make sure their lights are working and check they have screenwash.
The King is deeply saddened by the death of a British man who was killed in the attack in New Orleans on New Year’s Day – amid reports he was the stepson of an ex-royal nanny.
Sky News understands the King was made aware of Mr Pettifer’s death through official channels, was deeply saddened, and has been in touch with the family to share personal condolences.
The 31-year-old’s family said they were “devastated” by his death.
“He was a wonderful son, brother, grandson, nephew and a friend to so many,” the family said in a statement.
“We will all miss him terribly. Our thoughts are with the other families who have lost their family members due to this terrible attack. We request that we can grieve the loss of Ed as a family in private.”
New Orleans’ coroner said the preliminary cause of death for Mr Pettifer was blunt force injuries.
Fourteen people were killed and dozens injured when 42-year-old army veteran Shamsud-Din Jabbar’s rented truck rammed into people in New Orleans’ famous Bourbon Street in the early hours of New Year’s Day.
Jabbar was killed in a shootout with police.
The Federal Bureau of Investigation (FBI) said the attack was “premeditated” and an “evil” act of terrorism, and added Jabbar was “100% inspired by ISIS”, also known as Islamic State.
The preliminary cause of death for all the victims was blunt force injuries, according to the New Orleans coroner.
The coroner has identified most of those killed in the attack, with efforts continuing to identify the final female victim.
• Edward Pettifer, 31, from Chelsea, west London • Andrew Dauphin, 26, from Montgomery, Alabama • Kareem Badawi, 23, from Baton Rouge, Louisiana • Brandon Taylor, 43, from Harvey, Louisiana • Hubert Gauthreaux, 21, from Gretna, Louisiana • Matthew Tenedorio, 25, from Picayune, Mississippi • Ni’Kyra Dedeaux, 18, from Gulfport, Mississippi • Nicole Perez, 27, from Metairie, Louisiana • Reggie Hunter, 37, from Prairieville, Louisiana • Martin Bech, 27, from New York City, New York • Terrence Kennedy, 63, from New Orleans, Louisiana • Elliot Wilkinson, 40, from Slidell, Louisiana • William DiMaio, 25, from Holmdel, New Jersey
An Islamic State (IS) flag, weapons, and what appeared to be an improvised explosive device (IED) were found in the vehicle used in the attack, the FBI said.
The suspect posted five videos on social media before the rampage in support of IS, the agency added.
In his first clip, Jabbar said he was planning to harm his own family and friends, but was concerned headlines would not focus on the “war between the believers and disbelievers”, said Christopher Raia, deputy assistant director of the FBI’s counter-terrorism division.
Jabbar also joined IS “before this summer”, and provided a will, the FBI chief said.
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0:22
The half-brother of the attack suspect said ‘this wasn’t the man I knew’
In an interview with a Texas-based TV station, owned by Sky News’ partner network NBC News, Jabbar’s younger half-brother said he was thinking about all those impacted by the attack.
Abdur-Rahim Jabbar said: “This is a tragedy. We’re all grieving about this.”
The suspect was a Muslim, with his sibling adding: “This wasn’t the man I knew. This wasn’t the father, the son that I knew.
“And that also, this isn’t any representation of Islam or Muslims or the Muslim community.”
On 16 January, there’s a strong chance you’ll be able to see Mars as the red planet will be in “opposition”, meaning Earth will be directly between it and the sun.
Just under a week later, on 21 January, you could see five planets – Saturn, Venus, Uranus, Jupiter and Mars – in the night sky after 9pm, according to the Royal Observatory Greenwich.
Four of the planets should be visible to the naked eye, but seeing Uranus will require a telescope or very dark skies.
Anyone hoping to spot celestial phenomena is advised to find a stargazing spot away from light pollution and to allow at least 15 minutes for your eyes to adjust to the darkness.