The Governor of the Bank of England has said the UK needs to ‘rebuild its reputation’ after Liz Truss’ mini-budget left Britain ‘hours’ from economic collapse.
Andrew Bailey said the Bank of England was forced to intervene after September’s mini-budget, which sent the pound down to an all-time low.
His comments came just hours after the Bank of England raised the interest rate from 2.25% to 3% to tackle soaring inflation, which added thousands of pounds to mortgage bills unfixed annual.
Asked about Britain’s closeness to financial Armageddon in September, Mr Bailey told Channel 4 News: ‘I think at the time we stepped in I can tell you that the messages we were getting from markets were it was hours.”
Speaking about the Bank having to promise to buy £65billion of government bonds to protect pension funds, Mr Bailey said: “We certainly reached a point where the markets were very unstable and c he key markets were the government bond market, which in many ways is the most fundamental of all.
Bank of England Governor Andrew Bailey (pictured) said Britain was ‘hours away’ from economic collapse after Liz Truss’ mini budget
In the aftermath of Liz Truss’ mini budget, the pound hit an all-time low, forcing the Bank of England to intervene
“And it was getting unstable and it was affecting pension funds for example and how they work.
“And our concern was that when you find yourself in that situation it can easily spread very quickly and then you have a huge job to do to get it under control.
“So we had to intervene quickly and we had to intervene quite decisively. This felt and was a very real threat to financial stability.
Mr Bailey also hit back at criticism from government ministers after then business secretary Jacob Rees-Mogg claimed the run on the pound was partly caused by the Bank’s inability to raise interest rates faster.
The Bank Governor said: “I thought that was a mistaken observation, I’m going to be honest with you, and what I would say is that we have observed that the markets are now correcting, and if you ask – well, what has been the change in policy in the meantime, it has been a change in fiscal policy.
“I’m afraid I think that comment was misplaced. Also, I think there were comments about it, it was due to world markets, I don’t really think that’s the case.
“Granted, global markets have had shocks this year, we’ve had some common shocks, Ukraine would be an example, but that was a particularly British problem.”
Mr Bailey also said the UK must now restore its record of financial stability.
He added: “I think the UK needs to rebuild its reputation. There will be people looking at the UK, surprised at what has happened and therefore looking to sort of draw conclusions as to what happens next.
Mr Bailey also criticized former Business Secretary Jacob Rees-Mogg (pictured)’s claim that the run on the pound was partly caused by the Bank’s failure to raise interest rates more rapidly.
“Now I think there has really been a lot of stability restored over the last three weeks. markets react to these situations.
Along with the interest rate hike, the Bank of England today confirmed that the UK is already in recession and will likely continue to experience an economic contraction until the middle of 2024.
If confirmed, it would be the longest experienced by the UK since records began in the 1920s – stretching well beyond the Bank’s previous forecast of 15 months.
By 2025, according to the Bank’s forecast, unemployment will have jumped from the current 3.5% to 6.5%.
Interest rates are now at their highest since the 2008 global financial crisis after the 7-2 decision by the Monetary Policy Committee (MPC), the eighth consecutive hike.
The increase – which follows a similar announcement from the US Federal Reserve last night – is the biggest daily move since Black Wednesday in 1992, when Britain’s decision to withdraw from the Exchange Rate Mechanism sent the markets spiraling upwards.
But the panicky Black Wednesday rate hike only lasted one day.
The last time there was a sustained increase of this magnitude was in 1989.
Borrowers with a standard variable mortgage of £200,000 could see their repayments jump by more than £1,000 a year.
After the midday announcement, Chancellor Jeremy Hunt admitted the move would be ‘very difficult for families with mortgages across the country’.
But he said it was necessary to act now and avoid bigger and more brutal measures in the future. This comes ahead of his November 17 autumn statement in which he is expected to introduce major tax hikes and spending cuts for families and businesses to plug a £50billion black hole.
“The best thing the government can do, if we want to reduce these interest rate hikes, is to show that we are reducing our debt,” he told broadcasters.
“Families across the country need to balance their books at home and we need to do the same as a government.”
There was, however, a glimmer of good news amid the gloom.
Mr Bailey suggested rates could now peak lower than expected – analysts believe may be below 5%.
This means that the cost of fixed rate mortgages, which have climbed north of 6%, could start to come down, helping those who are about to remortgage.
But he warned it was a “difficult road” for the UK and households.
He acknowledged that eight rate hikes since last December are “big changes and have a real impact on people’s lives.”
But he said: “If we don’t act forcefully now, it will be worse later.”
