THE Bank of England on Tuesday insisted that it was dumping the pound and would proceed with its decision to stop supporting the bond market on Friday after reports it may extend it, leaving major pension funds facing bankruptcy.
‘The Bank was buying bonds to stabilise their price and prevent a sale which could toss millions of peoples’ pension schemes into the dustbin.
The Bank’s thumbs down for the pound comes after boss Andrew Bailey told pension funds: ‘You’ve got three days left now and you’ve got to sort it out.’
The pound fell against the dollar to below $1.09 after Bailey’s blunt statement on Tuesday evening, which dashed investor hopes of the support being extended, but was dismissed as a bluff!
Bailey told the BBC he had stayed up all night to try and find a solution and said the Bank was doing everything it could to preserve financial stability, but said it had always been clear that the help would be temporary.
Speaking on the BBC’s Today programme yesterday, however, Business Secretary Jacob Rees-Mogg tried to suggest that the reason for the economic collapse in recent weeks was down to changes in interest rates, and not the huge tax cut pledges made by the Truss government to the rich.
Bailey’s insistence that the Bank of England support for the pound would end was no slip of the tongue, as the BoE governor went out of his way to stress that the financial giants would now have to arrange their affairs.
He said pension funds have ‘an important task’ to ensure they are resilient. He added: ‘I’m afraid this has to be done, for the sake of financial stability.’
The pound was being sacrificed to try to keep the capitalist system intact.
The Bank has stepped in three times to buy government bonds since Prime Minister Truss and Chancellor Kwarteng promised huge tax cuts without saying how they would be funded, sparking investor fears over the UK’s financial stability.
It later emerged that the funding was to be provided by the poorest people on Universal Credit not getting increases that matched the rate of inflation. It was the poorest that were to pay for the tax cuts of the richest!
The government raises money it needs for spending by selling bonds – a form of debt that is paid back plus interest in anywhere between five and 30 years.
Pension funds invest in bonds because they provide a low but usually reliable return over a long period of time.
However, a sharp fall in their price after the mini-budget forced pension funds to sell bonds, threatening to create a ‘downward spiral’ in their prices as more were offloaded, which left some funds close to collapse, and their pensioners close to bankruptcy.
Members of the Bank’s Financial Policy Committee (FPC), which helps to protect UK ‘financial stability’, told journalists at a briefing that the governor was crystal clear the bond-buying programme would end, although other support measures would remain in place.
The recent collapses have now already fed through to the mortgage market, where hundreds of products have been suspended as the extreme volatility has made it difficult for lenders to know what the price should be of these long-term loans.
Last week, interest rates on typical two and five-year fixed rate mortgages topped 6% for the first time in over a decade. The Bank of England said that this was likely to put households under severe financial pressure next year.
This comes after the International Monetary Fund (IMF) warned that the worst was still to come for the global economy, while 2023 would ‘feel like a recession’ for many people because of rising costs and the continued fall-out of Russia’s intervention into the Ukraine.
The IMF warned on Tuesday that the UK economy could sharply reduce in 2023 as consumer spending is slashed by rising prices and higher interest rates.
It is perfectly clear that the only way to defend the interests of the working class and middle class is for workers to make the TUC call a general strike to bring down the Tory regime and bring in a workers government that will nationalise the banks and the major industries and bring in a planned socialist economy for the benefit of all workers. Lobby the TUC Congress on October 18. Demand it calls a general strike!
