By JILL LAWLESS and DANICA KIRKA, Associated Press
LONDON (AP) — The pound fell against the dollar early Wednesday after the governor of the Bank of England confirmed that the bank would not extend an emergency debt purchase plan introduced last month to stabilize markets. financial.
Andrew Bailey said the program will end on Friday as scheduled.
“My message to the concerned (pension) funds – you have three days left now. You have to do this,” Bailey said Tuesday night in Washington. “Part of the essence of a financial stability intervention is that it is clearly temporary.”
The pound fell nearly 1% to just below $1.10 after Bailey’s speech, before recovering slightly after the Financial Times reported that the bank was, after all, ready to keep going. buy bonds past Friday’s deadline.
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The central bank stepped in after the British government on September 23 announced plans for 45 billion pounds ($50 billion) in tax cuts without saying how it would pay for them. The announcement spooked financial markets and sent the pound plummeting to a record low of $1.03 against the dollar.
The Bank of England stepped in to support the bond market and stem a wider economic crisis that was particularly threatening pension funds.
Analysts say pension funds lobbied the central bank to extend the program for two weeks, but Bailey stuck to the schedule during an appearance at the Institute of International Finance’s annual meeting in Washington.
The market turmoil has caused pain for many Britons, especially would-be home buyers, who have seen mortgage rates soar on the heightened prospect of a sharp central bank rate hike during its meeting next month.
He has also exerted intense political pressure on the Conservative government of Prime Minister Liz Truss, which took office in early September with a promise to boost growth through tax cuts and deregulation.
Friction grew between the government and the independent Bank of England. Business Secretary Jacob Rees-Mogg suggested on Wednesday that the market turmoil was primarily the result of the bank’s inability to raise interest rates as quickly as its US counterpart, the Federal Reserve.
He said the market response was “much more related to interest rates than a minor part of fiscal policy.”
Many economists dispute this view and blame the government’s budget announcement for the chaos. In an effort to allay concerns, Treasury chief Kwasi Kwarteng said on Monday he would release the government’s detailed budget plans on October 31, three weeks earlier than expected.
But the government has still not made it clear how it will pay for its tax cuts, except to say that faster economic growth will boost tax revenue. Economists say deep cuts in public spending will be needed. The Independent Institute for Fiscal Studies says the government may need to cut spending by up to £62billion a year to meet its public debt control targets.
In more bad financial news, the Office for National Statistics said on Wednesday that Britain’s economy contracted 0.3% in August, down from 0.1% growth in July, manufacturing and services to consumers, both registering declines.
“The economy contracted in August as output and services fell, and with a slight downward revision to July growth, the economy has contracted over the past three months as a whole. “said the bureau’s chief economist, Grant Fitzner.
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