Pound fell sharply late on Tuesday after Bank of England Governor Andrew Bailey urged investors to complete unwinding of positions they cannot hold before the central bank withdraws support later this week.
My message to the funds involved and all firms is that you now have three days,” Mr. Bailey said at an event in Washington on Tuesday.
“You have to get this right.”
In its latest intervention, the BoE extended a series of debt buybacks to inflation-linked bonds mostly owned by pension funds, which on Monday saw their biggest drop on record.
in unusually strong language, Britain’s central bank said it was acting to prevent a so-called “fire sale” that was threatening Britain’s financial stability.
It was the second major BoE intervention since Prime Minister Liz Truss’ new government unveiled its “mini-budget” on September 23, the centerpiece of which was a massive but unfunded round of proposed tax cuts.
“The root cause of the problem is that investor confidence in UK PLC has been shaken and the BoE is trying to mask the symptoms of this as it cannot do anything about the cause,” said Richard McGuire, Rabobank’s head of rates strategy.
The UK’s influential Institute for Fiscal Studies estimates that Treasury Secretary Kwasi Kwarteng needs to find at least £60bn (€68bn) in savings to boost market confidence, a sum that would likely require massive public spending cuts.
The IMF said reversing the tax cuts would calm markets.
Mr. Kwarteng has delayed the date when he will announce a mid-term financial plan to October 31, giving him an opportunity to try to convince investors that his plans are consistent with fiscal sustainability.
It is accompanied by economic forecasts prepared by the government’s financial watchdog, the Office for Fiscal Responsibility.
According to Tobias Adrian, Director of Money and Capital Markets, the IMF “fully supported” the BoE’s moves to contain bond market price movements.
He said reversing Mr Kwarteng’s tax cuts “would change the future path of interest rates”.
“Basically, expansionary fiscal policy has triggered a shift in expectations for monetary policy,” he said.
https://www.independent.ie/business/world/bank-of-england-gives-funds-three-days-to-get-set-for-new-reality-42059217.html The Bank of England is giving money for three days to adjust to the new reality