Closing summary
It’s been a wild day in the financial markets, with the pound sinking to an alltime low as investors lost confidence in the UK’s public finances following last Friday’s mini-budget.
And sterling is under more pressure tonight, as our economics editor Larry Elliott reports:
Sterling came under fresh, heavy pressure on the world’s financial markets after the Bank of England appeared to ruled out an emergency rise in interest rates to defend the struggling UK currency.
Sterling lost two cents against the US dollar after investors were left unimpressed by Threadneedle Street’s decision to adopt a wait-and-see approach rather than act immediately.
The pound hit a record low against the greenback in Far East trading overnight but had recovered as the markets anticipated action from the Bank’s nine-strong monetary policy committee (MPC).
However, the attempt by the Bank’s governor, Andrew Bailey, to play for time left the pound once again looking vulnerable to selling pressure and within minutes of the Bank’s statement it was trading within three cents of its all-time low of just above $1.03.
Here’s the full story:
Kwasi Kwarteng’s fiscal event is looking like an ever-more-serious serious blunder, after sterling reeled to just $1.0327 in Asia-Pacific markets, a new alltime low.
Market confidence in the UK has been badly hit, on fears that Britain’s twin deficits – the budget, and the current account – will both widen alarmingly.
UK government bonds have been hit by a shocking selloff, driving up the cost of short-term borrowing to the highest level since 2008.
Analysts at Nomura warned that the pound will hit parity by the end of November, end the year weaker, and fall further below parity in 2023.
The Treasury and the Bank of England have attempted to reassure markets tonight, with the central bank insisting it ‘won’t hesitate’ to act if needed, and the government pledging to outline how it will bring down the UK’s debts over time.
But investors aren’t impressed, concerned that the Treasury’s plans won’t come until late November.
If a week is a long time in politics, a month is an eternity in a sterling crisis, and some economists are predicting more action will be needed soon.
Kwarteng announces he'll set out his "medium term fiscal plan" on November 23 - with new details of fiscal rules and publication of OBR targets.
— Pippa Crerar (@PippaCrerar) September 26, 2022
That's *eight weeks* away.
Top investors and economists had urged the bank to consider an emergency rate hike, perhaps a whole percentage point, to prop up sterling.
- Pound resumes drop as Bailey pours cold water on Emergency Hike
— Francine Lacqua (@flacqua) September 26, 2022
- BOE says that it will assess pound drop at next rate decision@business
Paul Donovan, chief economist of UBS Global Wealth Management, said that investors “seem inclined to regard the UK Conservative Party as a doomsday cult” – a sign of how much damage has been caused.
Despite the Bank’s lack of action, the money markets are still anticipating that Bank Rate will be hiked dramatically, to around 6% by next summer.
That could caused a housing crash, experts warned today, and would also mean a deeper recession and more companies going bust.
If mortgage rates rise to 6%—as implied by markets’ current expectations for Bank Rate—the average household refinancing a 2yr fixed rate mortgage in the first half of 2023 will see *monthly* repayments jump to £1,490, from £863. Many simply won’t be able to afford this (1/2) pic.twitter.com/hkoZCcSfjJ
— Samuel Tombs (@samueltombs) September 26, 2022
And in another worrying development, some mortgage brokers have been forced to temporarily pull offers from the markets, due to volatility and uncertainty.
The crisis is causing global interest, with one US central banker warning tonight that it could hurt the US and European economies.
And Labour are demanding an inquiry into whether hedge funds used inside information to profit from the mini-budget, by shorting sterling or gilts.
Goodnight, We’ll be back tomorrow with the latest developments…
Updated
‘It’s a major concern’: how two UK firms are facing up to pound’s crash
The slump in the pound is going to have major repercussions for UK businesses.
A craft brewer in Peterborough and a Birmingham metal stamping firm have told us how the coost of their raw materials and parts imported from abroad will rise.. while imports are more competitive.
Oakham Ales was one of the first UK brewers to source hops from America, seeking bolder, punchier flavours.
It proved a wise decision, catching the zeitgeist as consumer tastes changed. Citra is now a common ingredient in the mash tuns of Britain’s craft brewers and Oakham’s own award-winning Citra ale is sold in supermarkets such as Tesco and Morrisons.
The fall in value of sterling poses a threat to that success story.
“It’s a proprietary hop, which means we have to buy direct from one of the big American hop companies,” said Oakham’s spokesperson, Nick Jones.
“There’s no option on that, we have to buy in dollars, so obviously the pound plunging is a big problem for us.
For businesses whose exports are more valuable than their imports, it is a different story. The metal stamping company Brandauer, which turned 160 years old in March, sends products such as razor blades and components for electrical devices like kettles all over the world.
“At the minute, it’s upside for us,” said the the Brandauer chief executive, Rowan Crozier.
“It’s quite a good opportunity for us at the moment.
Here’s the full piece, by my colleagues Rob Davies and Jasper Jolly
