A senior Tory MP has warned that “this inept madness cannot go on”, hitting out at Liz Truss’s government after the Bank of England was forced to intervene to stabilise the bond market.
There was consternation among Conservatives and calls for parliament to be recalled after the Bank announced a move to temporarily purchase 30-year government bonds, which hit a 20-year high on Wednesday.
The bank said it wanted to stave off a “material risk to UK financial stability” with the move, which followed warnings the gilt market was becoming “close to untradeable” due to volatility.
The economic turmoil comes in the wake of chancellor Kwasi Kwarteng’s mini-Budget, which led the pound to sink to an all-time low on Monday.
Having rallied on Tuesday, the pound fell again this morning, as FTSE-100 stocks tumbled to a near 18-month dip – after the International Monetary Fund stepped in to urge Mr Kwarteng to “re-evaluate” the tax cuts in his mini-Budget.
Tory MP warns Truss premiership could be over ‘within a month’
A Tory MP has told the Financial Times that Liz Truss must either fire Kwasi Kwarteng as chancellor or risk losing the keys to No 10 “within a month”.
Bank of England intervention ‘may not be enough to convince the sceptics’
AJ Bell’s investment director has cast doubt on whether the Bank of England’s move to buy up government bonds will be enough to “convince the sceptics”.
The bank’s U-turn, due to end on 14 October, may not be enough to put “bond vigilantes” – investors who sell off bonds in protest against fiscal policy – “firmly back in their basket”, warned Russ Mould.
“The Bank is still going to try and navigate inflation on one hand and the threat of recession on the other, while at the same time trying to keep an eye on sterling and market volatility. It’s not a very easy balancing act,” he said.
“Having probably given the market a lesser-rate hike than it expected last week and to confirm that it was committed to quantitative tightening, to then have to come back to quantitative easing a week later … it’s not going to convince the sceptics.”
EU ‘will not back down’ on Brexit protocol, Barnier says
The EU’s former Brexit negotiator Michel Barnier has warned that the bloc “must not and will not back down” on the Northern Ireland Protocol.
During a speech at Iveagh House in Dublin, Mr Barnier said that the EU had worked for six years to “look for technical solutions to the problem created by Brexit”, which he called “a unilateral decision by one party with negative impacts for itself, first of all, and for the 27 other member states”.
Describing himself as having worked with “objectivity, without any kind of ideology, just to find rational solutions to the problem created by Brexit, and only by Brexit”, Mr Barnier said that – despite “dogmatism from the consecutive British governments” – an agreement, including the Northern Ireland Protocol, was reached.
“The European Union must not and will not back down on the protocol of Ireland and Northern Ireland. We must ask that it be respected by the British government. This is international law.”
‘This is not conservatism’, says ex-No 10 chief of staff urging rethink
Our political correspondent Adam Forrest reports:
Nick Timothy, former No 10 chief of staff under Theresa May, has called for a rethink, saying the mini-Budget was “reckless and ideological and is a disaster for the savings and livelihoods of ordinary people”.
He tweeted: “The libertarian right has captured the government and pursued a plan they were warned against.”
Mr Timothy added: “This is not conservatism, and it is not what conservatives do. Ideology and unnecessary risks with market confidence are supposed to be what the other side does. We do need a different plan – but this is a disaster that should never have happened.”
Labour would not impose 50p top rate of income tax, Starmer says
Sir Keir Starmer has said he was not suggesting imposing a 50p top rate of income tax – but instead was committing to restoring it to 45p.
Asked about the prospect by BBC News, the Labour leader said: “We are not suggesting that, we are simply saying we will reverse the cuts.’’
Government’s ‘Operation Rolling Thunder’ renamed in wake of mini-budget turmoil, source says
The government had labelled its operation to develop a programme of supply-side reforms had been dubbed “Operation Rolling Thunder” – but the name has been scrapped in response to the turmoil over the mini-Budget, according to the Telegraph’s political editor, who cited a Whitehall source.
IFS warns of possible five-year public spending freeze
The government may have to freeze spending on public services five years as part of the chancellor’s fiscal plan, according to Paul Johnson, director at the independent Institute for Fiscal Studies (IFS) think-tank.
“The difficulty the government has got itself in is that it is cutting taxes so dramatically without any kind of plan of what it is going to do on public spending,” Johnson told BBC Radio 4’s The World at One.
“If I had to guess now what that plan might look like, I would suggest that it will be that [Mr Kwarteng] will look five years into the future and he’ll say ‘I’m going to freeze spending over the whole of that five-year period’.”
He added: “The problem with that is that, particularly after a decade of austerity and cuts in public services, there are serious questions as to whether there is any credibility associated with a freeze in public spending for such a long period of time.”
Truss accused of wrecking Channel crossings deal with Macron ‘friend or foe’ gaffe
Liz Truss is under fire for allegedly scuppering a “groundbreaking” deal to tackle Channel crossings by asylum-seekers with her claim during the Tory leadership race that the “jury is out” on whether French president Emmanuel Macron is a “friend or foe”.
The deal was ready to go, but was scrapped in anger by French officials, it is claimed.
Our deputy political editor Rob Merrick has the details here:
Liz Truss accused of wrecking Channel crossings deal with Macron gaffe
Claim that ‘groundbreaking’ agreement for UK officials to work in France was ready for sign-off
Bank of England intervention ‘utterly humiliating’ for government, Tory former minister says
The Bank of England’s emergency intervention in the gilt market is “utterly humiliating” for Liz Truss’s government, a Tory former minister has said.
They told Sky News: “The party has been possessed by some sort of evangelical zeal. It defies all scientific and economic logic. It’s utterly humiliating the UK central banks have had to step in. Who’s going to explain to people mortgage payments could go up hundreds of pounds.”
Another senior Tory backbencher told the broadcaster’s deputy political editor Sam Coates: “I thought Boris Johnson’s Cabinet the worst in history. That one’s just beaten it.”
Bank putting plasters on ‘wounds’ created by Truss government, say experts
The Bank of England’s move to buy bonds “smacks of a bit of panic and also of frustration that the government appears to be digging in its heels, reluctant to perform a political U-turn”, said Susannah Streeter, senior analyst at Hargreaves Lansdown.
Calling the policies by the government and the Bank “topsy turvy”, she added: “The Bank of England has been forced to pursue a monetary U-turn, an abrupt change of policy as the Bank’s monetary policy committee had been pursuing a policy of selling down the Bank’s bond holdings.”
Joshua Raymond, a director at broker XTB.com, said the Bank’s intervention “means it is now much more likely we will see major interest rate hikes” before the next schedule meeting in November.
He said the Bank of England was “applying plasters on the financial wounds created by the Truss government, who have shown no hint at reversing policy”.
Torsten Bell, chief executive of the Resolution Foundation, said that the Bank has effectively decided to do temporary extra quantitative to stop wild increases in rates on bonds. He said it was “nuts” that the country got “into this position in the first place”.
