“It will be difficult for some households to manage the expected increases in the cost of necessities alongside higher interest rates,” the quarterly summary of economic policy said.
London, Thanasis Gavos
The UK faces “significant risks” to financial stability, the Bank of England warned in its quarterly economic policy summary.
In the coming months, the report says, “it will be difficult for some households to manage the expected increases in the cost of necessities alongside higher interest rates.”
The central bank also points to the “severe dysfunction” caused by rises in government bond yields, which occurred after the uncosted mini-budget presented by the Truss government at the end of September.
On Tuesday night, Bank of England governor Andrew Bailey said from Washington that there would be no extension to the central government’s emergency government bond buying program, which expires on Friday.
The intervention was mainly aimed at protecting pension funds that have invested heavily in government bonds. Addressing them, Mr Bailey characteristically said “you have three days to sort them out”.
Aside from concerns about the viability of some pension funds, the governor’s statement also caused sterling to temporarily fall back below $1.10.
However, reports indicate that privately central bank officials are leaving the window open for an extension of the emergency intervention.
The Bank of England also came under fire this morning from Business Secretary Jacob Rees-Mogg, who disputed the prevailing view that the market jitters and worries about financial stability were caused by the mini-budget.
Mr Rees-Mogg claimed the reactions may well have been caused by the central bank’s decision not to raise the key lending rate as much as the US Federal Reserve.
The minister’s statement was criticized in the midday session of the House of Commons by the leader of the main opposition Labor Party, Sir Keir Starmer, commenting that “it is not surprising that the markets do not trust the government”.
Meanwhile, the latest official figures from the Office of National Statistics record an unexpected contraction of the GDP for the month of August.
Specifically, the growth rate was -0.3%, while the growth rate for July was also revised downwards, from 0.2% to 0.1%.
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