BoE intervenes as IMF criticises UK budget

Published September 29, 2022
A pigeon stands in front of the Bank of England in London, Britain, April 9, 2018. — Reuters/File
A pigeon stands in front of the Bank of England in London, Britain, April 9, 2018. — Reuters/File

LONDON: The Bank of England stepped in on Wednesday to shore up market confidence after the International Monetary Fund criticised Britain’s inflation-fighting budget.

In a surprise move, the BoE announced it was temporarily buying up long-dated UK government bonds “to restore orderly market conditions”.

The pound promptly slu­m­ped 1.7 per cent to $1.0552 before clawing back ground.

There was respite elsewhere, with the UK government’s 30-year bond yield retreating to 4.44pc, having hit a 1998 peak at 5.14pc.

The BoE intervention followed criticism on Tues­day from the IMF, which argued that Britain’s bud­get could increase inequality and worsen inflation.

Credit ratings agency Moody’s also waded in overnight with a warning about soaring debt.

“So, the Bank of England finally intervenes after com­ing under so much pressure to act,” said City Index analyst Fawad Razaqzada.

“The BoE’s intervention is an attempt to soothe investor nerves after they were spooked by last we­­ek’s mini-budget.” Finance minister Kwasi Kwarteng’s big tax cuts and energy price freeze, aimed at boosting the UK’s recession-threatened economy, appeared to have had the opposite effect as traders warn of ballooning debt to pay for the incentives.

Following last Friday’s budget, UK bond yields soared and the pound hit a record low at $1.0350, perilously close to parity.

In a highly unusual intervention, the IMF late Tuesday said it was “closely monitoring” developments and urged the government in London led by new Prime Minister Liz Truss to change tack.

The Fund added: “We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.

“However, given elevated inflation pressures in many countries... we do not recommend large and untargeted fiscal packages at this juncture.” The IMF said the “UK measures will likely increase inequality” and stressed the importance of fiscal policy not working “at cross purposes to monetary policy”.

Published in Dawn, September 29th, 2022

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...
New terror wave
Updated 27 Mar, 2024

New terror wave

The time has come for decisive government action against militancy.
Development costs
27 Mar, 2024

Development costs

A HEFTY escalation of 30pc in the cost of ongoing federal development schemes is one of the many decisions where the...
Aitchison controversy
Updated 27 Mar, 2024

Aitchison controversy

It is hoped that higher authorities realise that politics and nepotism have no place in schools.