The Bank of England was not briefed properly about the disastrous mini-budget that forced it to launch a £65bn rescue of pension funds, it has told MPs.
Its deputy governor said the Bank would have warned then-chancellor Kwasi Kwarteng if it believed there was a threat to “financial stability” – but was unaware of the full scale of tax cuts to be unleashed.
“We did not have a full briefing of the package the night before,” Sir Jon Cunliffe told the Commons treasury committee, of the 23 September “fiscal event”.
“Had they asked us what the market reaction would be, we would have interacted with them,” he said, adding: “Where they engage us we obviously help.”
Sir Jon also revealed the leap in government borrowing costs triggered by the spooking of the financial markets was unprecedented, calling it “outside of historical experience”.
He partly blamed Mr Kwarteng for promising further tax cuts, two days after the mini-budget, saying: “I think that did have an impact in Asian markets on the Sunday evening.”
Alongside him, the Bank’s executive director for markets, Andrew Hauser, spoke of the growing panic of traders faced with the plunging value of government gilts they held.
They went from quietly notifying the Bank of their concerns to “shouting on the phone to us within two days” that “this is completely out of control”, the committee was told.
Sir Jon also warned he could not be “confident” that “other stresses in the financial system” won’t emerge in the weeks to come, as the mini-budget is unwound.
The markets have stabilised, but only because of the dramatic U-turns that have shredded almost all of it – and all eyes are on the spending cuts to be unveiled on 31 October.
The deputy governor pointed to Mr Kwarteng’s refusal to call it a budget – to avoid an analysis by the Office for Budget Responsibility – for the absence of a detailed briefing of its contents.
He noted it was an “out of cycle fiscal event”, saying: “Normally, the Treasury briefs us confidentially on the budget and public spending announcements.”
Sir Jon suggested the episode was unlikely to be repeated ahead of the 31 October “medium term fiscal plan”, saying of Jeremy Hunt: “ The chancellor has underlined the importance of working with the Bank, so I would expect that to happen.”
Asked if Mr Kwarteng had “blindsided” the Bank, Sir Jon replied: “Some things were a surprise on the day, to us as to others. We did not have a full briefing of the package the night before.”
He said the Bank would have advised the government if it knew such a dramatic knock-on effect on market stability would follow the mini-budget.
But he added: “It is not our responsibility to give the government advice on fiscal policy, it is the role of the Treasury.”
