Liz Truss leaves after Jeremy Hunt’s address
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Britain was just hours from a complete financial meltdown in the wake of Liz Truss’s mini-budget, Bank of England Governor Andrew Bailey has admitted. The sobering revelation comes less than a fortnight after Ms Truss quit as UK Prime Minister after just 45 days in office.
And Mr Bailey offered an insight into just how close the nation came to complete chaos in an interview with Channel 4 news.
Ms Truss’s Chancellor, Kwasi Kwarteng, delivered his financial statement in the House of Commons on September 23.
Mr Bailey said the Bank was then forced to step in “quickly” and “decisively” to mitigate a “very real threat to financial stability” after markets were spooked by the calamitous £45billion tax giveaway included in the package of measures.
He explained: “We certainly reached a point where markets were very unstable, and these were core markets, this is the Government bond market, which is in many ways the most core of all.
“And it was becoming unstable and it was affecting pension funds for instance, and how they were operating.”
Mr Bailey added: “And our worry was that when you get into that situation, this can easily spread very rapidly and then you have a huge job on your hands to get it back under control.
“So we had to step in quickly and we had to step in quite decisively.”
Asked how close the UK had come to total meltdown, Mr Bailey said: “I think at that point when we intervened, I can tell you that the messages we were getting from the markets were that it was hours.”
He said it was “hard to compare” the autumn’s turmoil with the global financial crisis in 2008, saying: “I’m not sure I could give you an exact comparison, but this felt and was a very real threat to financial stability.”
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Mr Bailey also the so-called Trussonomics policies of borrowing to fund tax cuts, on top of a massive spending commitment to control energy bills, would have a lasting impact on the UK’s credibility.
He continued: “There has been a questioning of UK policy. That will have some lasting effect and we have to work very hard to put that in the past, frankly.
“There has been a UK premium on rates. If you look at how UK rates have moved since we were here at the beginning of August compared to the euro area and the US, they’ve all gone up, but the UK clearly went up far more, and it went up during this period when there was considerable turmoil in the markets.”
Also speaking today, Jeremy Hunt, the man Ms Truss replaced Mr Kwarteng with as Chancellor just days before she herself was forced to quit, warned families will face “very tough” times as mortgage costs soar after the Bank of England increased interest rats from 2.25 percent to three percent.
Mr Hunt insisted there were problems affecting economies around the world, but that in the UK Prime Minister Rishi Sunak would “fix” the issues caused by Ms Truss and Mr Kwarteng in September’s financial statement.
Asked whether Tory incompetence was to blame for the country’s economic problems, Mr Hunt said: “What my party has done is put in place a new Prime Minister.
“We also have a new Chancellor of the Exchequer.”
Mr Hunt said Mr Sunak recognised the problem when he entered Downing Street and said “he was there to fix that” while the Chancellor said he had reversed the measures in the mini-budget within days of entering No11.
He told reporters in Carshalton, south London: “The best thing the Government can do if we want to bring down these rises in interest rates is to show that we are bringing down our debt.
“Families up and down the country have to balance their accounts at home and we must do the same as a Government.”
The Chancellor is expected to set out a package of tax rises and spending cuts in his November 17 autumn statement.
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