UK bonds and pound hit as Bank of England denies it will delay bond sales – business live

Newsflash: The Bank of England says the report it plans to delay the sale of some of its UK government bonds is ‘inaccurate’, which has knocked bond prices lower.

As we covered earlier, the Financial Times reported that the Bank was expected to delay the sale of bonds bought through its quantitative easing (QE) stimulus programme, because gilts markets were “very distressed”.

But in a brief statement, a spokesperson for the central bank said.

“This morning’s FT report that the BoE has decided to delay MPC gilt sales (‘QT’) is inaccurate,”

Bond traders have responded by selling gilts, which is pushing up the yield (or interest rate) on short and long-dated bonds, which measures the cost of UK borrowing.

The 30-year bond yield, for example, is now up 5 basis points at 4.42%, having dropped as low as 4.32% this morning.

Ryanair boss Michael O’Leary has described the current economic situation in Britain as a “car crash” which he blamed on the country’s decision to vote to leave the European Union in 2016, Reuters reports.

O’Leary told a news conference in Rome that Britain needs a sensible trading agreement with the EU, saying

“The mini budget was a kind of spectacular failure of the whole concept of Brexit.”

O’Leary welcomed the appointment of Jeremy Hunt as chancellor, and the economic u-turn announced yesterday:

“The Remainers are coming back, the adults are taking charge again .. we will return to some sensible economic policies.”

He said he expected Truss to be out of office within a week or two, as she was now “in office but not in power”.

Today’s bond market stability follows a report that the Bank of England is set to delay the sale of billions of pounds of government debt.

The pause, reported in the Financial Times, is meant to foster greater stability in gilt markets following the UK’s failed “mini” Budget.

The Bank had originally planned to start selling off some of its £838bn of bonds back on October 6th. But it paused the kick-off until the end of this month, after the turmoil in the gilts market.

The FT says the Bank is expected to bow to pressure from investors for a second delay;

The Financial Times has learnt that the bank’s top officials have come to this view after judging the gilts market to be “very distressed” in recent weeks, a view backed by its Financial Policy Committee.

Investors have also warned that the central bank’s plans to begin selling bonds in its portfolio at the end of this month could destabilise markets.

The Bank build up its mountain of gilts through its quantitative easing programme, created in the financial crisis and bolstered during the pandemic. QE was designed to push down bond yields, encouraging investors to buy riskier assets.

The reversal (called ‘quantitative tightening’) risks pushing yields up by adding to the number of bonds for sale – at a time when the Bank has only just stopped its temporary emergency bond-buying scheme to maintain market stability.

The Bank must also be concerned about further turbulence in the City, and Westminster too.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explains:

Newly parachuted in UK finance minister, Chancellor Jeremy Hunt has succeeded in appeasing bond market vigilantes for now. UK government borrowing costs are hovering near yesterday’s low with 10 year gilt yields still below 4%. But the hard won truce could fall apart in the weeks to come, if his spending plans don’t deliver the detail investors crave for economic policy uncertainty to abate.

This is likely to be why the Bank of England is reported to be further delaying the sale of billions of pounds of government bonds which it was originally due to offload earlier this month. It’s clear the bank is still unnerved by the potential for fresh instability in gilt markets given that so much uncertainty still remains about the government’s fiscal plans

After weeks of turbulance, a sense of calm has returned to the market for UK government bonds. So far, anyway.

The prices of both short and long-dated sovereign debt are little changed this morning, meaning UK borrowing costs are flat too following the return to fiscal discipine.

These gilts all rallyied dramatically on Monday after chancellor Hunt binned most of the mini-budget, and slashed the length of the energy price freeze.

This morning, the yield (or interest rate) on 10-year UK bonds has dipped slightly to 3.96%, from 3.98% on Monday night, after tumbling from over 4.3% at the end of last week.

That means it still costs more to borrow than before the mini-budget (when the 10-year bond had a yield of 3.3%), but less than last week when it surged over 4.5%.

Long-dated bonds, where prices had plunged during the crisis in the pensions sector, are calm too.

The UK’s Debt Management Office is auctioning a long-dated bond today – which will be a test of market confidence….

Shadow chancellor Rachel Reeves told the Today programme that Britain’s essential services cannot take more spending cuts.

She explained:

The truth is that our public services, our schools, our hospitals, our police force are already on their knees.

Reeves insists that “Austerity Season Two is not the answer”, pointing out that people weren’t talking about the need for spending cuts before the “huge damage” caused by the current government.

But how would Labour tackle the fiscal black hole?

Reeves said she would ‘get a grip’ on government spending – ending the fraud and waste she says was written off by Rishi Sunak, and stopping spending billions on contracts to friends and donors of the Conservative party.

But…

Further cuts to our police, our health service, and our schools is not something that I would support, either as shadow chancellor or chancellor of the Exchequer

And she adds that Labour have a plan to grow the economy:

We’ll inherit the mess that the Conservative’s leave, and I’m under no illusions about the scale of those challenges.

Reeves reiterated calls for an extension of the windfall tax on oil and gas companies, and an end to tax breaks for UK residents who have their permanent home outside Britain.

The London stock market has opened higher, adding to Monday’s gains following the shredding of much of the mini-budget.

The blue-chip FTSE 100 index has gained 62 points, or 0.9%, to 6983 points, the highest in a week.

The domestically-focused FTSE 250 index (which surged 2.7% yesterday) has gained another 0.65%.

European markets have also opened higher, after gains in Asia-Pacific bourses overnight.

Jim Reid of Deutsche Bank says the UK’s recent woes have impacted global markets, so chancellor Hunt’s u-turn may have reassured investors beyond the City.

Correlation doesn’t equal causality, but the UK news has again seemed to heavily influence global markets over the last 24 hours after the UK government officially announced one of the biggest U-turns in political history and ditched the bulk of what remained of their mini-budget.

However the risk momentum was also helped by a view that earnings season has starting relatively well versus beaten up expectations.

The Resolution Foundation think tank has warned spending cuts could be as deep as those after the 2009 financial crisis, as the government tries to draw up a plan to get debt falling in the medium term.

Chief executive Torsten Bell said on BBC Radio 4’s Today programme there was a fiscal black hole of around £30bn even after the Government scrapped nearly all of its mini-budget.

“These are big numbers. If we are talking of spending cuts between £30bn to £40bn billion then they’re not that far off the scale of the cuts announced by George Osborne back in 2010.”

Around £32bn of the £45bn of tax cuts in the mini-budget have now been reversed – but the IFS had estimated that over £60bn of spending cuts or tax rises were needed in total.

Bell also flagged that middle-income families may be unable to pay energy bills next year, after chancellor Jeremy Hunt cut the energy freeze to six months, from two years.

The average annual energy bill is set to rise to more than £4,000 from April, according to Cornwall Insight – which Bell says will be a ‘big deal’ for households.

“I think really£4,000 is so large that even middle-income households won’t be able to afford those bills next year.

“So he’s done the easy bit, scrapping the existing scheme, what he’s got to do is some hard work about how he intends to provide support for lower and middle-income households next year.”

Frances O’Grady will also warn that the TUC will fight the government in court, if new anti-trade union legislation is introduced.

The TUC general secretary will tell Congress today that:

“Just when the citizens of this country are in despair, when key workers’ kids are going to school with holes in their shoes, and young families are worried sick about taking on a mortgage – Liz Truss’ top priority is to make it harder for workers to win better pay.

“It’s a cynical effort to distract from the mess this government has caused.

“If ministers cross the road to pick a fight with us then we will meet them halfway.

“Today I give ministers notice. We’ve already taken legal counsel and we know you’re in breach of international law and trade deals that enshrine labour standards.

“So read my lips: we will see you in court.”

Truss was criticised during last summer’s leadership race, after she pledged to introduce minimum service levels on critical national infrastructure, which could potentially restrict teachers, postal workers and those in the energy sector from going on strike.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

UK workers are facing “two decades of lost living standards”, the country’s trade unions warns today, as the spectre of soaring inflation and spending cuts loom.

Following the defenestration of the mini-budget yesterday, the TUC are telling ministers they have ‘no mandate’ for cutting pay and services, after chancellor Jeremy Hunt said he faced ‘decisions of eye-watering difficulty’.

The Trades Union Congress, whose 154th annual meeting begins in Brighton today, are warning that the Conservatives are “toxic” for the economy, and that a proper strategy to help lift wages and improve public services is needed.

TUC general secretary Frances O’Grady, will warn that working families “have been pushed to breaking point” after the “longest wage squeeze since Napoleonic times”.

O’Grady has set the scene, telling Radio 4’s Today Programme that working people must not pay the price for the “absolute mess and damage that this government has caused”.

Jeremy Hunt has slammed the gears into reverse, but an awful lot of damage has been done to livelihoods. People are worried about mortgages, worried about bills.

We simply can’t have a case where working people end up being treated as a cash till again and again and again.

Real wages have had the long squeeze on record. They’re set to fall by £4,000 again, in real terms over the next three years.

No wonder working people are standing up and saying this government has no mandate for cutting pay or services.

After a summer of strikes from workers fighting real term pay cuts, O’Grady insist that there is an “absolute morale and economic argument” for making sure that working people’s pay packages at least keep up with inflation.

She say:

The problem is Jeremy Hunt still hasn’t delivered a plan for real growth and rebalancing this economy.

TUC research has shown that dividends have been rising fast since the financial crisis, while real pay has fallen.

The economy has become skewed, O’Grady warns, and the UK needs to ensure people get fair pay and invest in public services.

We’ve got people leaving public services in droves because the pay has fallen so far behind, and frankly they feel taken for granted and undervalued as well as underpaid.

We need a change of direction from this government – but I’m afraid they are levelling down rather than levelling up.

More from O’Grady shortly….

Also coming up today

The pound is holding onto yesterday’s gains, as investors continue to show relief that Hunt has reversed most of Kwasi Kwarteng’s unfunded tax cuts.

But although Hunt scrapped £32bn of unfunded cuts, he may still seek billions more in savings when he presents the medium-term fiscal plan on 31 October. A squeeze on public spending could hurt essential services, and also weigh on growth.

The markets may have recalibrated, but Liz Truss’s position hasn’t changed – if anything it has soured, points out Chris Weston of brokerage Pepperstone:

She looked completely shell-shocked in parliament today, as Penny Mordaunt and Jeremy Hunt led proceedings.

Having just spoken to 1922 Committee Chair Graham Brady it appears he may have told her the sheer reality and the extent of Tory PMs who have little confidence in her position as PM. The situation will really unravel when we get a top-ranking MP publicly speaking out – that hasn’t happened yet, but it feels like a matter of time.

We also get a healthcheck on German economic sentiment, as a tough winter approaches, and on American factories:

The agenda

• 7am BST: EU car sales in September

• 9.30am BST: TUC Congress 2022 begins

• 10am BST: ZEW economic sentiment index for October

• 2.15pm BST: US industrial production report for September