LONDON (AP) – The pound sank against the dollar early yesterday after the Bank of England (BoE)governor confirmed the bank won’t extend an emergency debt-buying plan introduced last month to stabilise financial markets.
Andrew Bailey said the programme will end tomorrow as scheduled. The pound fell by almost one per cent to just below USD1.10 after Bailey spoke, before rallying slightly. After the government’s September “mini-budget”, the currency hit a record low of USD1.03.
“My message to the (pension) funds involved – you’ve got three days left now. You have got to get this done,” he said. “Part of the essence of a financial stability intervention is that it is clearly temporary.”
The central bank stepped in after the British government on September 23 announced plans for GBP45 billion (USD50 billion) in tax cuts without saying how it would pay for them.
The announcement spooked financial markets and sent the pound plunging to a record low against the dollar.
The BoE intervened to prop up the bond market and stop a wider economic crisis that particularly threatened pension funds.
Analysts said pension funds lobbied the central bank to extend the programme by two weeks, but Bailey stuck to the timeline in an appearance at the annual meeting of the Institute of International Finance in Washington.
The market turmoil has caused pain for many Britons – especially prospective homebuyers, who have seen mortgage rates soar on the increased prospect of a big rate hike from the central bank when it meets next month.
It has also put intense political pressure on the Conservative government of Prime Minister Liz Truss, who took office in early September with a promise to boost growth through tax cuts and deregulation.
In an effort to ease concerns, Treasury chief Kwasi Kwarteng said on Monday that he would release the government’s detailed fiscal plans on October 31, three weeks earlier than scheduled.
But the government still hasn’t detailed how it will pay for its tax cuts, except to say faster economic growth will increase tax revenue.
Economists said deep public spending cuts will be needed.
The independent Institute for Fiscal Studies said the government may have to reduce spending by as much as GBP62 billion a year to achieve its targets for controlling public debt.
