The Bank of England reiterates the end of its emergency support program

GBP

Yesterday the pound plunged against the US dollar after further concerns were raised by the IMF regarding the UK government’s mini budget.

The Bank of England announced early on Tuesday that it will enact a further round of bond-buying to try settling the market. Investors have been selling off government bonds as they are worried about the UK’s fiscal plan and have no confidence about how the country will service its future debts. BoE Governor Andrew Bailey spoke yesterday evening and made it clear that the bank’s emergency support program will come to an end this Friday, which sparked another sell off of the pound.

Following that announcement Sterling dropped below 1.10, by over a cent and to the lowest level since 29 September. Bad news kept coming in as the IMF gave another bleak assessment of the mini budget. At its bi-annual outlook on financial markets, the organisation mentioned there had been a marked increase in asset price volatility in recent months driven by central banks rapidly raising interest rates – which could amplify vulnerabilities in the financial system. The IMF went on to highlight the BoE’s emergency intervention to buy long-dated bonds as an example of disorderly repricing of risk. They called on the BoE not to pause on their rate hiking cycle and seemed to indicate that their recent bond-buying intervention should continue beyond Friday if necessary to avoid putting economic growth and stability at risk.

The Washington-based fund also suggested the government should change course on its plan as they warn of a black hole of £62bn and that the UK was on course for a marked slowdown in growth from 3.6% this year to 0.3% in 2023. These forecasts however had been made before the mini budget and could be a lot more damaging now, even though growth may actually improve in the short term.

This morning’s UK GDP month-on-month data release showed that the UK economy contracted by 0.3% in August, which was attributed to a large drop in manufacturing pointing to further weakening of the economy in the third quarter.

Key announcements

13:30 – USD – US PPI MoM

14:30 – EUR – ECB President Lagarde speaks

19:00 – USD – US Federal Reserve minutes from last meeting