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Bank of England intervenes for second time

Chancellor Kwasi Kwarteng’s budget is still viewed by markets as unsustainable.

11 October 2022

The Bank of England (BoE) has again had to foray into the index-linked end of the market as prices in these bonds come under ever increasing pressure. Chancellor Kwasi Kwarteng’s budget is still viewed by markets as unsustainable and even with his economic forecast announcement being hastily brought forward to 31 October, faith in his competence has significantly waned. While the BoE had to reasonably state today that threats of “fire-sales” in the gilt market pose a risk to UK financial stability, this acknowledgement cannot be what the government wants to hear. Markets are behaving in a similar fait-accompli fashion, suggesting that the BoE has limited tools to avert these “fire-sales” – the UK 30-year bond is down 23% this last month, close to where it fell to just before the BoE was forced to intervene, suggesting that monetary credibility is close to being lost. This needs to be sorted as soon as possible or wider cracks may start to build, but credibility is very difficult to restore once it has been lost. We are living in challenging times.

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Charles Hepworth

Investment Director
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