Bank of England governor says Liz Truss’s mini-budget left Britain ‘hours’ after financial meltdown

The Bank of England governor said the UK needs to “rebuild its reputation” after Liz Truss’ mini budget left Britain just “hours” from an economic collapse.

Andrew Bailey said the Bank of England was forced to step in after September’s mini budget sent the pound to an all-time low.

His comments came just hours after the Bank of England raised interest rates from 2.25 percent to 3 percent to tackle skyrocketing inflation.

When asked how close Britain had come to financial Armageddon in September, Mr. Bailey replied Channel 4 News“I think at the time we intervened I can say the messages we got from the markets were that it was hours.”

Speaking of the bank having to pledge to buy £65bn of government bonds to protect pension funds, Mr. many ways is the most important of all.

‘And it became unstable and it had consequences for pension funds and their way of working, for example.

“And our concern was that when you get into that situation, it can spread very quickly and then you have a huge job to get it back under control.

“So we had to act quickly and we had to act quite decisively. This felt and was a very real threat to financial stability.”

Bailey also responded to criticism from ministers after then Chancellor of the Exchequer Jacob Rees-Mogg claimed the run on the pound was partly caused by the bank’s failure to raise interest rates more quickly.

The bank governor said, “I thought it was wrong as an observation, I’ll be honest with you, and what I would say is, as we’ve seen markets correct themselves now, and if you ask — well, what’s the change in policy in the intervening period, it has been a change in fiscal policy.

“I’m afraid I think that comment was misplaced. Plus, I think there were comments that it was due to the global markets, I don’t really think that’s the case.

“Certainly, world markets have had shocks this year, we’ve had common shocks, Ukraine would be an example, but this was primarily a British issue.”

Mr Bailey also said the UK now needs to restore its record of financial stability.

He added: ‘I think the UK needs to restore its reputation. There will be people looking at the UK, amazed at what happened and therefore trying to sort of jump to conclusions about what happens next.

“Now, I think there’s been a lot of stability recovery over the past three weeks. However, I think the markets have reacted to a very volatile situation and I don’t think we will be surprised to see markets react to those situations.”

In addition to raising rates, the Bank of England confirmed today that the UK is already in a recession and is likely to continue to experience economic contraction until mid-2024.

If confirmed, it would be the longest experience the UK has had since record-keeping began in the 1920s – well beyond the Bank’s previous forecast of 15 months.

In 2025, the Bank predicted, unemployment will rise from 3.5 percent now to 6.5 percent.

Interest rates are now the highest since the global financial crisis in 2008 following the 7-2 decision by the Monetary Policy Committee (MPC), the eighth straight increase.

The rise – which followed a similar announcement from the US Federal Reserve last night – is the biggest daily move since Black Wednesday in 1992, when Britain’s decision to withdraw from the exchange rate mechanism sent markets into a spiral.

But the panicked rate hike on Black Wednesday only lasted one day.

The last time there was a sustained increase of this size was in 1989.

Borrowers with a standard £200,000 variable mortgage could see their repayments rise by more than £1,000 a year.

Following the luncheon announcement, Chancellor Jeremy Hunt admitted the move would be “very difficult for households with mortgages across the country.”

But he said it was necessary to act now and avoid bigger, bolder moves in the future. It comes ahead of his autumn statement on November 17, in which he is expected to introduce drastic tax increases and austerity for families and businesses to fill a £50bn black hole.

“The best the government can do, if we want to curb these rate hikes, is to show that we are reducing our debt,” he told broadcasters.

“Families across the country need to balance their bills at home and we as government need to do the same.”

However, there was a glimmer of good news amidst the gloom.

Mr Bailey suggested interest rates could now turn lower than forecast – analysts think possibly below 5 per cent.

This means that the cost of fixed-rate mortgages, which have risen above six percent, could start to fall, helping those about to re-mortgage.

But he warned it was a “difficult road ahead” for the UK and households.

He acknowledged that eight rate hikes since last December are “major changes and have a real impact on people’s lives.”

But he said, “If we don’t take firm action now, things will get worse later.”