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.
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.
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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.
Police have said they are not looking for any other suspects and have asked the public to “avoid speculation about the incident and to respect the boy’s family at this deeply upsetting time”.
The baby boy died in hospital on Sunday, police said today.
Investigating officer Detective Constable Zoe Eele, of the Child Abuse Investigation Unit, said: “We are investigating a distressing incident involving a very young child at Legoland Windsor earlier this week.
“Firstly, our thoughts are with the family of the boy who sadly died in hospital after suffering a cardiac arrest. We are supporting them as best we can at this extremely difficult time.
“We are working closely with the team at Legoland Windsor Resort but would like to speak to anyone who may have information about this incident, specifically anyone who was queueing for the Coastguard HQ boat ride between around 11.30am and 12:45pm.”
Temperatures could hit highs of 26C this weekend, with Saturday in with a chance to be the hottest day of the year so far.
Forecasters say temperatures will build over the coming days before coming to a head over the weekend, with mostly clear conditions expected across England and Wales.
By Saturday, the Met Office indicates the south of England could see highs of up to 26C. So far, the hottest temperature recorded this year was in Santon Downham in Suffolk, which saw 23.4C last Thursday.
The forecaster said high pressure will push north throughout the week and bring more warmer and drier conditions after the bank holiday weekend washout.
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Met Office meteorologist Amy Bokota said: “High pressure is forecast to dominate the UK for the rest of the week and into the weekend.
“High pressure brings dry and settled weather and with warm air sat over the UK this will give some pleasant warm temperatures. There is good confidence that high pressure will last until the weekend.
“Temperatures are expecting to build over the next few days, with a likely peak of Saturday.”
Scotland and Northern Ireland are also set to enjoy warmer springtime weather, with 22C also forecast on Saturday in Glasgow.
Northern parts of the UK will still see cloudy skies, and patches of moving high pressure are “likely to cause periods of prolonged rainfall” in parts of Northern Ireland and the north of Scotland, Met Office spokesperson Grahame Madge said.
The sunnier skies aren’t set to last long, however. In their long range outlook to 21 May, the Met Office said that Sunday will “likely be the last widely dry and fine day for a while, with warm sunshine for most”.
It added: “After Sunday, the weather is expected to switch back to become changeable across the country, with further spells of rain and showers expected.
“Rainfall amounts could be above average in most areas. It is also possible that rain will be heavy at times, and any showers could turn thundery. Temperatures are also expected to fall closer to average for May.”
The King is too busy to see Prince Harry during his visit to the UK, the duke’s spokesperson has said.
Harry is in London for an event celebrating 10 years of the Invictus Games.
It marks the first time the royal has been in the country since his rushed visit to see the King in February after the monarch’s cancer diagnosis.
There had been press speculation that the pair would meet up again on his latest trip, but a spokesperson for the Duke of Sussex has said the King is too busy to see his son.
“In response to the many inquiries and continued speculation on whether or not the duke will meet with his father while in the UK this week, it unfortunately will not be possible due to His Majesty’s full programme,” the spokesperson said.
“The duke of course is understanding of his father’s diary of commitments and various other priorities and hopes to see him soon.”
The King returned to public duties last week for the first time since his diagnosis for an unspecified form of cancer.
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Buckingham Palace has said his diary will be carefully managed to minimise any risks to his health.
The palace has also said it would not comment on matters relating to Harry.
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The monarch held an audience with the prime minister of Fiji, Sitiveni Rabuka, at Buckingham Palace today as Harry was seen in the UK.
Earlier, a Sky News camera captured Prince Harry arriving at the Honourable Artillery Company’s headquarters on the edge of the City of London for a one-day summit, called the Invictus Games Foundation Conversation.
The event is looking back over the decade-long history of the games which Harry founded in 2014 as a Paralympics-style sporting event for injured and sick military personnel and veterans.
It is taking place ahead of a ceremony at St Paul’s Cathedral on Wednesday to mark the 10th anniversary of the games.
The ceremony will be the first major event Harry has attended in Britain for some time.
Harry hails legacy that ‘transcends sports’
Speaking in a foreword at the summit taking place today ahead of the St Paul’s service, Harry said: “It has been an honour to watch the Invictus Games Foundation grow over the years; what began as a vision to pay tribute to the courage and resilience of wounded, injured, and sick service personnel and veterans, has flourished into an international organisation built on hope, strength, and unity.”
The duke also wrote: “We are eager to celebrate the Invictus Spirit once again – exemplified in every single competitor, staff, friend and family member – your commitment, enthusiasm and belief, have been the driving force behind our continued success.”
He added: “Together, we have created a legacy that transcends sports; a community that embraces compassion, respect, and the unyielding belief in the power of the human spirit. As we celebrate this milestone, let us recommit to the Invictus mission.”
It is not known if any other members of the Royal Family will be in attendance at the ceremony at St Paul’s Cathedral on Wednesday.
British actor Damian Lewis is set to recite the Invictus poem during the service.
Representatives from across the Invictus Games participating nations, including members of the wounded, injured and sick service personnel and veteran community, will also be in attendance.
Following his visit to Britain, Harry will be joined by his wife Meghan for a trip to Nigeria.
The Duke of Sussex served in the UK military himself for 10 years from 2005 and was deployed to Afghanistan on two occasions.
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From February: Prince Harry and Meghan visit training camp
Harry was inspired to found the Invictus Games after attending the Warrior Games in Colorado in 2013 and seeing how injured American military personnel thrived on the challenge of taking part in competitive sports that aided their recovery.
He went on to stage the inaugural games in London’s Olympic Park in 2014, followed by Orlando in 2016, Toronto in 2017 and Sydney 2018.
Harry has only visited the UK a few times since his decision to move to the US.
His latest trip comes after reports of a rift between himself and his brother William, the heir to the throne.
In a tell-all book published in January last year, Harry made several explosive claims about the royals – detailing fallouts with his family, including William.