Britain’s economy is in such a dire state since the premature removal of former Prime Minister Boris Johnson that if the Bank of England had not stepped in today, pension funds would have collapsed.
In an unprecedented move, the Bank of England was forced to step in with a £60 billion buy-up of government debt today to stop the economy from crashing.
It comes just days after the new Conservative government under the leadership of the newly elected Liz Truss announced its tax-lowering budget plan in response to the country’s rising energy prices.
The pound has continued to plummet in value and interest rates soared from 0.01 percent last December to 2.25 percent as from this month as the Bank of England attempts to lower sky-high inflation:
“Higher energy prices is the main reason why inflation is currently so high. In particular, Russia’s invasion of Ukraine led to big increases in the price of gas. The war in Ukraine has also increased food prices,” wrote the Bank of England on its website.
“There is also pressure on prices from developments in the UK. Businesses are charging more for their goods and services because of the higher costs they face.”
But as Liz Truss’ newly elected Chancellor of the Exchequer, Kwasi Kwarteng, announced a £45bn package to lower UK taxes and to provide homes with help for their higher energy bills, the Bank of England has been forced to interject following a “dynamic run” triggered by government borrowing and the plummeting pound.
“This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt,” said the Bank.
“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.
‘I don’t think they were expecting that the chancellor would do everything he was talking about all at once.’
Dr Eamonn Butler reacts to IMF calling for tax cut reversals in response to Kwasi Kwarteng’s mini-budget saying ‘reality has to assert itself.’ pic.twitter.com/UOkqsml89D
— GB News (@GBNEWS) September 28, 2022
“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
Despite the huge amount of concern, Truss and her Chancellor, Kwarteng have remained tight lipped today and the new prime minister of just 3 weeks has not as of yet given any official statement about the crisis.
Meanwhile, Conservative MP, Andrew Griffith said the government has no plans to alter the budget and is determined to “get on and deliver that plan”. When asked if the Conservative Party’s budget had contributed to the Bank’s rescue, he replied:
“We both know that we’re seeing the same impact of Putin’s war in Ukraine cascading through things like the cost of energy, some of the supply side implications of that.
“And that’s impacting every major economy and just the same, every major economy, you’re seeing interest rates going up as well.”
The British Treasury echoed Griffith’s words in an official statement, adding that “global financial markets have seen significant volatility in recent days” :
“These purchases will be strictly time limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury.
“The Chancellor is committed to the Bank of England’s independence. The Government will continue to work closely with the Bank in support of its financial stability and inflation objectives,” said the statement.