The Bank of England has been urged to raise interest rates as soon as next week to help the pound from further weakening.
Sterling plunged by the most since March 2020, reaching the lowest in 37 years against the US dollar, following Kwasi Kwarteng’s mini-Budget. It fell by as much as 3.5pc to $1.0863 after the Government outlined new debt borrowing to fund increased spending.
Meanwhile, UK bond yields were on the rise, with the 10-year gilt yields seeing their biggest one-day surge on record in Bloomberg data.
Deutsche Bank analysts said there are “very strong signals” that the market is no longer willing to fund the UK’s external deficit position.
Threadneedle Street needs to show that it will do “whatever it takes” to bring inflation down quickly and real yield in to positive territory.
Deutsche Bank’s analyst George Saravelos said: “We’ve been expressing our concerns about UK external sustainability for a while. The very large, unfunded tax cuts and other fiscal giveaways announced by the UK chancellor a few minutes ago only strengthen our worries.
“From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding.”
In the job two weeks and KK has sunk the economy. Is this a record?
Do they want a load of people to lose their houses ?
Seems like the only growth KK is causing with this plan is growth in further problems
The government of the day, really screwed over the nation, by removing house prices from the inflation calculator, then giving the BOE the job of keeping inflation at 2 percent.
What happens if the pound falls to like for like on the dollar/euro?
Can’t wait to see how they mess things up even more next week then
Kwasi Kwatang has shorted the pound, him and his cronies will make billions.
The BoE need to show some serious intent and double if next week really, get it into the 4+% bracket which is where it should now be had they started to raise it sooner than they did.
Maybe this has been one big plot to put us back in the EU and use the Euro
The Tories managed to smear Gordon Brown and ride that wave of blaming the last Labour govt for being fiscally irresponsible into a 12 year term.
Now this absolute muppet comes along and performs this crash. It is beyond siimply being poor at your job, it should fall under criminal negligence.
I just wish the left were able to mobilise and attack Tory lines as effectively as the right are able because Brown was a superb Chancellor. Yet his name is often (maybe just with my experience) shit on.
Damned if you do, damned if you don’t. If we don’t raise the pound through interest rate increases then industry and business will struggle which likely would mean layoffs and people lose their jobs and homes (almost all business is impacted in some way by dollar rate). The problem of course is that if the interest rate increases then people still lose their homes and there’s not much point in having those jobs to begin with.
Of course if you have mass housing sell off through either of the above then you increase housing supply and reduce demand (hence the stamp duty cuts announced to keep buoyant), but if that needle moves too far then you end up with negative equity and everyone who hasn’t lost their homes starts handing the keys back anyway.
Probably too late at this point, the pound has been dropping in value for years. Better to try and prevent it dropping too much though then not trying at all.
Emergency rates to save the economy from the government…
I think soon the mortgage test that the banks were forced to conduct to validate whether mortgage applicants can sustain an increase in rates will get tested for real.
Didn’t they just raise the base rate literally 2 days ago??
Come on King Charles, dissolve Parliament and cause a real constitutional crisis.
So from reading some comments and the article it seems that the economy is pretty much fucked in the short, medium, and long term. Now it is just a case of how much of that fucking can the Bank of England soften slightly.
Truss & Kwarteng have been in their positions for two weeks and have managed to utterly fuck the economy and the country. 12 years of Tories is mostly the blame, but rather than aim for the foot they went straight for the head. Bunch of fucking morons.
I wonder how big those rate increases will be.
Almost want to guess 5% or more.
They could make a weekly TVseries about the chancellor fiscal screwing policy and the BoE trying to rescue the pound. Calling it “Keeping up with Kwarteng”
Goodness. It’s almost like the Tories are intentionally trying to f**k up the economy as much as possible in order to lose an election so they can wash their hands of this gigantic need they’ve made.
Wake me up when they get it back to at least 75p to a dollar.
I’m just exhausted of all the news and headlines of this shit show now. When can we have someone in power that actually feels like they give a shit about most of us? If things were easier for me, I’d be seriously considering leaving the country but circumstances right now prevent that…
To add; the worst of it is that people are constantly defending the Tories, like have some fucking pride and just accept (if you voted for them) that they weren’t the best choice. At this point, I would say that nearly ANY other party would have done a better job.
To rescue the pound from the chancellor of the exchequer………
At this rate Charles III should just take over. I mean he can’t do worse. Dissolve parliament and rule by direct proclamation
The Bank of England do not give a fuck, they’re part of the problem.
A few things I don’t understand, with hats off to some incites from “The deficit myth” by Stephanie Kelton. We print out our currency, we can do virtually any policy we like (survive Covid, pay off all student debt, etc) as a policy decision alone. The trick is to do so without fueling inflation.
Further, GDP is not an amount but an indication of velocity. If someone gets paid, goes to to pictures, goes out for a meal, buys goods, etc – there’s a multiplier effect. £1 given to someone in lower income brackets will often lead to £6 of GDP, whereas giving it to a company or wealthy individual will find it goes into a bank account – much less if any reuse.
So, what’s the source of inflation? Corporate profits are way up in certain sectors, which sort of suggests an extent of corporate communism; extracting wealth in disproportion to value delivered (capitalism should put brakes on the ability to do so, by virtue of competition). So, where is this extraction occurring.
My simple brain says two specific items and one general one,
First is energy prices with weak regulation. Natural Gas powers around 40% of our electricity supply, with a quarter of that extracted from petroleum production. Two gotchas; one is that pricing is dictated by futures markets, so a rumour of potential shortages immediately drives up pricing – even when the input costs hardly move. Hence a profits binge. At the same time, electricity suppliers are allowed to price all their supply (wind, waves, nuclear, coal) as if all the supply was sourced from the most expensive fuel in the stack. Hence while prices of most haven’t increased, all the supply is priced up as if 100% of electricity supply comes from gas. So prices way up, costs aren’t following, so a major profit binge – at the same time heat/light costs resulting hit every sector across the board – driving up inflation.
Petrol prices – there hadn’t been a shortage. Again, futures markets driven my war in Ukraine plus all supply denominated in US$. Input prices hadn’t changed, but retail…
So on face value, the correct thing to do would be to impose exceptional tax on the profits binge reflecting the broken business models and to get regulators to be much more aligned to representing end customers in the longer term. So major tax income to be distributed back to not feed inflation.
Every single change by Truss etc is 180 degrees away from sense. You almost couldn’t do any more wrong to address the situation competently. And the tabloids cheer them on regardless.
Totally sick.
The pound slipping is a huge crisis. It was hovering around 1:1.4 ratio at the start of the year. Now 1:1 parity looks nigh on inevitable. That would mean +40% on US imports. We import so much from the US, I don’t think people realise just how reliant we are on that country for products and services. This is going to send inflation to the moon.
29 comments
The Bank of England has been urged to raise interest rates as soon as next week to help the pound from further weakening.
Sterling plunged by the most since March 2020, reaching the lowest in 37 years against the US dollar, following Kwasi Kwarteng’s mini-Budget. It fell by as much as 3.5pc to $1.0863 after the Government outlined new debt borrowing to fund increased spending.
Meanwhile, UK bond yields were on the rise, with the 10-year gilt yields seeing their biggest one-day surge on record in Bloomberg data.
Deutsche Bank analysts said there are “very strong signals” that the market is no longer willing to fund the UK’s external deficit position.
Threadneedle Street needs to show that it will do “whatever it takes” to bring inflation down quickly and real yield in to positive territory.
Deutsche Bank’s analyst George Saravelos said: “We’ve been expressing our concerns about UK external sustainability for a while. The very large, unfunded tax cuts and other fiscal giveaways announced by the UK chancellor a few minutes ago only strengthen our worries.
“From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding.”
In the job two weeks and KK has sunk the economy. Is this a record?
Do they want a load of people to lose their houses ?
Seems like the only growth KK is causing with this plan is growth in further problems
The government of the day, really screwed over the nation, by removing house prices from the inflation calculator, then giving the BOE the job of keeping inflation at 2 percent.
What happens if the pound falls to like for like on the dollar/euro?
Can’t wait to see how they mess things up even more next week then
Kwasi Kwatang has shorted the pound, him and his cronies will make billions.
The BoE need to show some serious intent and double if next week really, get it into the 4+% bracket which is where it should now be had they started to raise it sooner than they did.
Maybe this has been one big plot to put us back in the EU and use the Euro
The Tories managed to smear Gordon Brown and ride that wave of blaming the last Labour govt for being fiscally irresponsible into a 12 year term.
Now this absolute muppet comes along and performs this crash. It is beyond siimply being poor at your job, it should fall under criminal negligence.
I just wish the left were able to mobilise and attack Tory lines as effectively as the right are able because Brown was a superb Chancellor. Yet his name is often (maybe just with my experience) shit on.
Damned if you do, damned if you don’t. If we don’t raise the pound through interest rate increases then industry and business will struggle which likely would mean layoffs and people lose their jobs and homes (almost all business is impacted in some way by dollar rate). The problem of course is that if the interest rate increases then people still lose their homes and there’s not much point in having those jobs to begin with.
Of course if you have mass housing sell off through either of the above then you increase housing supply and reduce demand (hence the stamp duty cuts announced to keep buoyant), but if that needle moves too far then you end up with negative equity and everyone who hasn’t lost their homes starts handing the keys back anyway.
Probably too late at this point, the pound has been dropping in value for years. Better to try and prevent it dropping too much though then not trying at all.
And if they don’t, it’s going to raise further eyebrows regarding the BoE’s independence – [which is already somewhat in doubt](https://www.cityam.com/truss-appears-to-soften-bank-of-england-independence-stance/?amp=1) also not going to help sterling’s credibility…
Emergency rates to save the economy from the government…
I think soon the mortgage test that the banks were forced to conduct to validate whether mortgage applicants can sustain an increase in rates will get tested for real.
Didn’t they just raise the base rate literally 2 days ago??
Come on King Charles, dissolve Parliament and cause a real constitutional crisis.
So from reading some comments and the article it seems that the economy is pretty much fucked in the short, medium, and long term. Now it is just a case of how much of that fucking can the Bank of England soften slightly.
Truss & Kwarteng have been in their positions for two weeks and have managed to utterly fuck the economy and the country. 12 years of Tories is mostly the blame, but rather than aim for the foot they went straight for the head. Bunch of fucking morons.
I wonder how big those rate increases will be.
Almost want to guess 5% or more.
They could make a weekly TVseries about the chancellor fiscal screwing policy and the BoE trying to rescue the pound. Calling it “Keeping up with Kwarteng”
Goodness. It’s almost like the Tories are intentionally trying to f**k up the economy as much as possible in order to lose an election so they can wash their hands of this gigantic need they’ve made.
Wake me up when they get it back to at least 75p to a dollar.
I’m just exhausted of all the news and headlines of this shit show now. When can we have someone in power that actually feels like they give a shit about most of us? If things were easier for me, I’d be seriously considering leaving the country but circumstances right now prevent that…
To add; the worst of it is that people are constantly defending the Tories, like have some fucking pride and just accept (if you voted for them) that they weren’t the best choice. At this point, I would say that nearly ANY other party would have done a better job.
To rescue the pound from the chancellor of the exchequer………
At this rate Charles III should just take over. I mean he can’t do worse. Dissolve parliament and rule by direct proclamation
The Bank of England do not give a fuck, they’re part of the problem.
A few things I don’t understand, with hats off to some incites from “The deficit myth” by Stephanie Kelton. We print out our currency, we can do virtually any policy we like (survive Covid, pay off all student debt, etc) as a policy decision alone. The trick is to do so without fueling inflation.
Further, GDP is not an amount but an indication of velocity. If someone gets paid, goes to to pictures, goes out for a meal, buys goods, etc – there’s a multiplier effect. £1 given to someone in lower income brackets will often lead to £6 of GDP, whereas giving it to a company or wealthy individual will find it goes into a bank account – much less if any reuse.
So, what’s the source of inflation? Corporate profits are way up in certain sectors, which sort of suggests an extent of corporate communism; extracting wealth in disproportion to value delivered (capitalism should put brakes on the ability to do so, by virtue of competition). So, where is this extraction occurring.
My simple brain says two specific items and one general one,
First is energy prices with weak regulation. Natural Gas powers around 40% of our electricity supply, with a quarter of that extracted from petroleum production. Two gotchas; one is that pricing is dictated by futures markets, so a rumour of potential shortages immediately drives up pricing – even when the input costs hardly move. Hence a profits binge. At the same time, electricity suppliers are allowed to price all their supply (wind, waves, nuclear, coal) as if all the supply was sourced from the most expensive fuel in the stack. Hence while prices of most haven’t increased, all the supply is priced up as if 100% of electricity supply comes from gas. So prices way up, costs aren’t following, so a major profit binge – at the same time heat/light costs resulting hit every sector across the board – driving up inflation.
Petrol prices – there hadn’t been a shortage. Again, futures markets driven my war in Ukraine plus all supply denominated in US$. Input prices hadn’t changed, but retail…
So on face value, the correct thing to do would be to impose exceptional tax on the profits binge reflecting the broken business models and to get regulators to be much more aligned to representing end customers in the longer term. So major tax income to be distributed back to not feed inflation.
Every single change by Truss etc is 180 degrees away from sense. You almost couldn’t do any more wrong to address the situation competently. And the tabloids cheer them on regardless.
Totally sick.
The pound slipping is a huge crisis. It was hovering around 1:1.4 ratio at the start of the year. Now 1:1 parity looks nigh on inevitable. That would mean +40% on US imports. We import so much from the US, I don’t think people realise just how reliant we are on that country for products and services. This is going to send inflation to the moon.