Delayed London Stock Exchange - 11:35 2022-12-02 am EST
144.20 GBX +0.21%

Investors assess the economic impact of BoE's intervention

09/29/2022 | 03:34am

Faced with soaring borrowing rates across the Channel, the Bank of England stepped in due to "real risks to British financial stability", it said. It announced that it would carry out purchases of long-dated government bonds to "restore normal market conditions". It will spend 65 billion overall, with 5 billion of spending every day until October 14.

"The market movement has been exacerbated since yesterday and is particularly affecting long-term debt. If this market dysfunction continues or worsens, it would cause a real risk to the UK's financial stability," the BoE said as it intervened.

The rate of 30-year bonds, which was around 3.5% at the start of last week, jumped to 5.14% in early trading Wednesday, a level not seen since 1998.

After the intervention, the yield on 10-year Gilts dropped by 50bps to 4%, while it dropped by more than 100bps to 3.9% for the 30-year Gilts. The FTSE100 ended 0.3% higher yesterday, but opened 1.3% down today.

The Treasury decided to maintain the costly tax cuts included in its mini-budget, despite harsh criticism from the IMF and Moody’s.

To justify the move, it said that it “acted quickly to protect households and businesses this winter and next, after unprecedented increases in energy prices", caused by the war in Ukraine.

"We are focused on growing the economy and living standards for all, and the Chancellor of the Exchequer will "publish a medium-term budget plan on 23 November" that will "ensure that the debt falls as a share of GDP", it added.

Meanwhile, British restaurant and pub operator Mitchells & Butler warned on Thursday that its margins took a hit due to soaring energy costs, which have risen to about £150 million this financial year from £80 million in 2019. It added that like-for-like sales were up 1.5% compared with 2019 for the fourth-quarter ended Sept. 24.


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Bank of England goes into full crisis management mode (Financial Times)

The Banker and Bailey Circus (WSJ) 2022
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