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This is starting to look a little… unnerving.

This morning the Bank of England tweaked its emergency intervention into the government bond (gilts) market for a second successive day.

The details are somewhat arcane: yesterday it doubled the amount it was offering to buy each day; today it said it would widen the stock of assets it is offering to buy. But what matters more is the big picture.

The government bond market is – in the UK and elsewhere – best thought of as the bedrock of the financial system.

The government borrows lots of money each year at very long durations and these bonds are bought by all sorts of investors to secure a low but (usually) reliable income over a long period of time.

Compared to other sorts of assets – such as the shares issued by companies or for that matter cryptocurrencies – government bonds are boring. Or at least, they’re supposed to be boring.

They don’t move all that much each day and the yield they offer – the interest rate implied by their prices – is typically much lower than most other asset classes.

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But recently the UK bond market (we call them gilts as a matter of tradition, short for gilt-edged securities, because in their earliest embodiment they were pieces of paper with golden edges) has been anything but boring.

In the wake of the mini-budget, the yield on gilts of various different durations leapt higher – much higher. The price of the gilts fell dramatically. That, ultimately, was what the Bank of England was originally responding to a couple of weeks ago.

But to understand what a tricky position it’s in, you need to zoom out even further. For while it’s tempting to blame everything on the government and its mini-budget, it’s fairer to see this as the straw that broke the market’s back. For there are three intersecting issues at play here.

The end of the low interest rate era

The first is that we are in the midst of a seismic economic moment.

For the past decade and a bit, we (here in the UK but also in the US, Eurozone and throughout most of the world) have become used to interest rates being incredibly low.

More than low, they were effectively negative, because in the wake of the financial crisis central banks around the world pumped trillions of dollars into the financial plumbing.

They mostly did so (in this case the method really matters) by buying up vast quantities of government debt. The Bank of England became the single biggest owner of UK gilts, at one point owning roughly a third of the UK’s national debt.

It was an emergency measure designed to prevent a catastrophic rerun of the Great Depression, but the medicine has proven incredibly difficult to wean ourselves off.

A few years ago, when the US Federal Reserve thought out loud about reversing quantitative easing (QE) – as the bond-buying programme is called – it triggered such a panic in bond markets that it immediately thought twice about it.

Since then, it and other central banks like the Bank of England have been as careful as possible not to frighten these markets. They have managed to end QE and, in the case of the Fed, have begun to reverse it. This is a very, very big deal.

Think about it for a moment.

All of a sudden, the world’s biggest buyers of arguably the world’s most important asset class have become big sellers of them.

In the UK, the Bank of England was due to begin its own reversal of QE round about now.

Tensions were, even before the government’s ham-fisted fiscal statement, about as high as they get in this normally-dull corner of financial markets.

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Reliance on complex derivatives

The second issue (and this is something only a few financial analysts and residents of the bonds market fully appreciated up until a few weeks ago) is that the era of low interest rates had also driven investors into all sorts of strange strategies in an effort to make a return.

Most notably, some pension funds had begun to rely on complex derivatives to keep earning a decent return each year while complying with regulations.

These so-called Liability Driven Investment strategies were well-suited for the nine-times-out-of-ten when the gilts market was boring. But as interest rates began to rise this year – partly because inflation was rising and central banks were beginning to raise interest rates and reverse QE; partly because investors twigged that the next prime minister seemed quite keen on borrowing more – these strategies began to run into trouble.

They were feeling the strain even before Friday 23 September.

Hard to think of a worse moment for an uncosted fiscal plan

But that brings us to the third of the issues here: the mini-budget.

The government bond market was already, as we’ve established, in a sensitive position.

Markets were, as one adviser to the Truss team warned them, febrile. It is hard to think of many worse moments for a new, untried and untrusted government to introduce uncosted fiscal plans. Yet that is what Kwasi Kwarteng did in his mini-budget.

The problem wasn’t really any single specific policy, but the combination.

It wasn’t about the sums (or lack thereof) but a dramatic loss of credibility for the government.

All of a sudden, the UK, which is anyway very reliant on external funding from overseas investors, seemed to surrender the benefit of the doubt.

Traders began to pull money from the UK, pushing the pound lower and forcing interest rates in the bond market higher (after all, if people are reluctant to lend to you, you have to offer them a higher rate to persuade them).

The new Chancellor seems genuinely to have been completely taken unawares by the reaction to his plan.

Yet the reality is that it so happened (in fiscal terms at least) to be about the worst possible pitch at the worst possible time. And it pushed up interest rates on government debt dramatically.

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Wave of defaults could lead to a total breakdown of system

As I say, this was far from the only thing going on in markets.

On top of all the above, there were and are question marks about whether the Bank of England is acting fast enough to clamp down on inflation.

But these questions, and many others, were effectively swamped by the catastrophic surge in interest rates following the mini-budget.

Catastrophic because the increase in rates was so sharp it threatened the very functioning of the gilts market – this bedrock of the financial system.

And for those liability-driven investors in the pensions sector, it threatened to cause a wave of defaults which could, the Bank of England feared, lead to a total breakdown of the system within days or even hours.

This fear of what it called a “run dynamic” – a kind of wholesale equivalent to what we saw with Northern Rock, where a firesale of assets causes values to spiral ever downwards – sparked it into action.

It intervened the Wednesday after the mini-budget, offering to buy £65bn worth of the longer-dated gilts most affected. The intervention, it said, was taken to prevent the financial system from coming to harm.

But the method of intervention was quite significant.

After all, wasn’t buying bonds (with printed money) precisely what the Bank had been doing for the past decade or so through its QE programme?

Well in one sense… yes. The Bank insisted this was different: that this was not about injecting cash into the economy to get it moving but to deal forensically with a specific issue gumming up the markets. Financial stability, not monetary policy.

Even so, the paradox is still hard to escape. All of a sudden the Bank has gone from promising to sell a bucket load of bonds to promising to buy them.

Market reaction

The initial market reaction was overwhelmingly encouraging: the pound rose and interest rates on government bonds fell.

It was precisely what the Bank would have wanted – and most encouragingly it seemed to be driven not by the amount of cash the Bank was putting in (actually surprisingly few investors took up its offer to buy bonds), but sentiment.

The vicious circle precipitated by the mini-budget seemed to be turning around.

But in the past few days of trading, things have unravelled again.

The pound has fallen; the yields on bonds have risen, back more or less to where they were shortly before the Bank intervened a couple of weeks ago. It is unnerving.

And this brings us back to where we started. The Bank has bolstered its intervention a couple of times but it hasn’t brought yields down all that much – indeed, quite the contrary.

As of this lunchtime Tuesday the yields on long-dated UK government bonds were even higher than they were 24 hours earlier.

Why? One obvious issue is that the Bank’s intervention is strictly time-limited. It is due to expire at the end of this week. That raises a few other questions. First, will the pension funds reliant on those liability driven investments have untangled themselves by then? No-one is entirely sure. For a sense of how worried investors are about this, just look at what happened to the pound tonight after the Bank’s governor, Andrew Bailey, insisted the emergency programme will indeed end on Friday. It plummeted off a cliff-edge, instantly losing almost two cents against the dollar.

Second, will the government have become more credible in the market’s eyes by then? Almost certainly not. Aside from anything else, it isn’t due to present its plans for dealing with the public finances until the end of this month.

Third, what does all this mean for monetary policy and the end of QE? If we are to take them at their word, after ending this scheme the Bank will shortly begin the process of selling off bonds all over again.

So, one day they’re gearing up to be a massive seller; the next a massive buyer; the next a massive seller all over again.

Little matter that the stated reasons for the bond buying/selling are different. From the market’s perspective, no one is quite sure where they stand anymore.

In this final sense, the UK has unwittingly turned itself into a kind of laboratory for the epoch we’re in right now.

Everyone was expecting bumps in the road as the era of easy monetary policy came to an end.

It seems we are currently experiencing some of those bumps. And it just so happened that, thanks in large part to its new government, the UK found itself careering towards those bumps rather than braking before hitting them.

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Lloyds Banking Group in talks to buy digital wallet provider Curve

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Lloyds Banking Group in talks to buy digital wallet provider Curve

Britain’s biggest high street bank is in talks to buy Curve, the digital wallet provider, amid growing regulatory pressure on Apple to open its payment services to rivals.

Sky News has learnt that Lloyds Banking Group is in advanced discussions to acquire Curve for a price believed to be up to £120m.

City sources said this weekend that if the negotiations were successfully concluded, a deal could be announced by the end of September.

Curve was founded by Shachar Bialick, a former Israeli special forces soldier, in 2016.

Three years later, he told an interviewer: “In 10 years time we are going to be IPOed [listed on the public equity markets]… and hopefully worth around $50bn to $60bn.”

One insider said this weekend that Curve was being advised by KBW, part of the investment bank Stifel, on the discussions with Lloyds.

If a mooted price range of £100m-£120m turns out to be accurate, that would represent a lower valuation than the £133m Curve raised in its Series C funding round, which concluded in 2023.

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That round included backing from Britannia, IDC Ventures, Cercano Management – the venture arm of Microsoft co-founder Paul Allen’s estate – and Outward VC.

It was also reported to have raised more than £40m last year, while reducing employee numbers and suspending its US expansion.

In total, the company has raised more than £200m in equity since it was founded.

Curve has been positioned as a rival to Apple Pay in recent years, having initially launched as an app enabling consumers to combine their debit and credit cards in a single wallet.

One source close to the prospective deal said that Lloyds had identified Curve as a strategically attractive bid target as it pushes deeper into payments infrastructure under chief executive Charlie Nunn.

Lloyds is also said to believe that Curve would be a financially rational asset to own because of the fees Apple charges consumers to use its Apple Pay service.

In March, the Financial Conduct Authority and Payment Systems Regulator began working with the Competition and Markets Authority to examine the implications of the growth of digital wallets owned by Apple and Google.

Lloyds owns stakes in a number of fintechs, including the banking-as-a-service platform ThoughtMachine, but has set expanding its tech capabilities as a key strategic objective.

The group employs more than 70,000 people and operates more than 750 branches across Britain.

Curve is chaired by Lord Fink, the former Man Group chief executive who has become a prolific investor in British technology start-ups.

When he was appointed to the role in January, he said: “Working alongside Curve as an investor, I have had a ringside seat to the company’s unassailable and well-earned rise.

“Beginning as a card which combines all your cards into one, to the all-encompassing digital wallet it has evolved into, Curve offers a transformative financial management experience to its users.

“I am proud to have been part of the journey so far, and welcome the chance to support the company through its next, very significant period of growth.”

IDC Ventures, one of the investors in Curve’s Series C funding round, said at the time of its last major fundraising: “Thanks to their unique technology…they have the capability to intercept the transaction and supercharge the customer experience, with its Double Dip Rewards, [and] eliminating nasty hidden fees.

“And they do it seamlessly, without any need for the customer to change the cards they pay with.”

News of the talks between Lloyds and Curve comes days before Rachel Reeves, the chancellor, is expected to outline plans to bolster Britain’s fintech sector by endorsing a concierge service to match start-ups with investors.

Lord Fink declined to comment when contacted by Sky News on Saturday morning, while Curve did not respond to an enquiry sent by email.

Lloyds also declined to comment, while Stifel KBW could not be reached for comment.

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UK economy figures not as bad as they look despite GDP fall, analysts say

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UK economy figures not as bad as they look despite GDP fall, analysts say

The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.

A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).

Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.

It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.

A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.

This was borne out by other figures released by the ONS on Friday.

Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.

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Overall, there was a “large rise in goods imports and a fall in goods exports”.

A ‘disappointing’ but mixed picture

It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.

“I am determined to kickstart economic growth and deliver on that promise”, she added.

But the picture was not all bad.

Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.

It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.

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The expansion in March means the economy still grew when the three months are looked at together.

While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.

Such a cut would bring down the rate to 4% and make borrowing cheaper.

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Is Britain going bankrupt?

Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.

“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.

Why did the economy shrink?

The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.

The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.

It made up for a “very weak” month for retailers, the ONS said.

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UK economy remains fragile – and there are risks and traps lurking around the corner

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UK economy remains fragile - and there are risks and traps lurking around the corner

Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.

However, the picture emerging a year since the election of the Labour government is not hugely comforting.

This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.

Output shrank in May by 0.1%. That followed a 0.3% drop in April.

Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.

Hangover from artificial growth

However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.

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In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.

Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.

Signs of recovery

Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.

“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.

Meanwhile, the services sector eked out growth of 0.1%.

A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.

Struggles ahead

It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.

The economy remains fragile, and there are risks and traps lurking around the corner.

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Is Britain going bankrupt?

Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.

Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.

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