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FirstFT: BoE’s £65bn move to calm markets

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The Bank of England took emergency action yesterday to avoid a meltdown in the UK pensions sector, unleashing a £65bn bond-buying programme to stem a crisis in government debt markets.

The central bank warned of a “material risk to UK financial stability” from turmoil in the gilts market sparked by Chancellor Kwasi Kwarteng’s tax cuts and borrowing plan.

In spite of the prolonged market upheaval, City minister Andrew Griffith said the government would stick to its strategy: “We think they’re the right plans because those plans make our economy competitive”, he said.

The BoE suspended a programme to sell gilts — part of an effort to curb surging inflation — and instead pledged to buy long-dated bonds at a rate of up to £5bn a day for the next 13 weekdays. Mortgage providers and brokers cheered the intervention, which raised hopes of a quick return of hastily withdrawn fixed-rate deals.

Economists warned that the injection of billions of pounds into the economy could fuel inflation. Analysts have expressed concern at how the chancellor and the BoE are pulling in opposite directions, with Kwarteng’s tax cuts intended to boost demand and the central bank raising rates to curb inflation.

How did Kwarteng’s “mini-Budget” trigger a fire sale in gilts? And will the rout affect your pension?

The rate rises should be a bonanza for big banks. Investors, however, are not all positive. Cat Rutter Pooley explains why. Mohamed El-Erian argues that if the market disorder persists, consequential adverse economic and financial effects will multiply.

Liz Truss’s onslaught on economic orthodoxy has sent a message to investors, writes Robert Shrimsley: Britain is not the bet it once was. In the hall of Westminster, several Conservative MPs predicted Kwarteng would not survive the turmoil.

Thank you to everyone who took part in yesterday’s poll. Seventy-six per cent of respondents thought the UK resembles an emerging economy in crisis. Now, on to the rest of today’s news — Jennifer

1. EU decries ‘deliberate’ pipeline sabotage Norway is deploying its military to oil and gas installations, while Brussels pledged “a robust and united response” to “deliberate” leaks in two Baltic Sea gas pipelines. Nato, the US and European governments said they believed the leaks were a case of sabotage. Moscow has denied involvement.

  • Explainer: Here’s what we know about the Nord Stream pipeline leaks.

  • More sanctions: The EU will implement a price cap on Russian oil and widen export bans in its eighth package to punish Moscow for the Ukraine war.

Map showing leaks in Nord Stream pipelines near Bornholm island in the Baltic Sea

2. M&A flurry and IPO drought stoke UK stock market fears Britain’s stock market has been hit by a wave of acquisitions, valued at more than £41bn this year, while new listings have managed to raise only £574mn in the weakest year for initial public offerings in more than two decades.

3. Lars Windhorst hired corporate spies to target football club boss: lawsuit The German financier hired an Israeli private intelligence company that orchestrated a clandestine campaign aimed at ousting the then-president of Bundesliga football club Hertha Berlin, of which Windhorst is the majority owner, according to a lawsuit.

4. Ken Griffin predicts US recession The billionaire founder of hedge fund Citadel has warned that there will be a recession in the country and said the Federal Reserve needs to do more to bring down inflation. “It’s just a question of when, and frankly, how hard,” he said.

5. Turkey talks tough on Greece President Recep Tayyip Erdoğan accused Athens of playing “perilous games” with regional stability, alleging a military build-up on Greek islands and saying Turkey would use “all the means at our disposal” to defend against its neighbour and fellow Nato member.

Yesterday’s edition of the newsletter incorrectly identified Slovakia. We apologise for the error.

The day ahead

US-Philippine talks US defence secretary Lloyd Austin and Philippine counterpart Jose Faustino Jr will join bilateral military co-ordination talks in Hawaii, the first time such senior figures have participated in the annual discussions. The two militaries also plan to double the scale of joint exercises next year.

UK mortgage data The Bank of England releases August credit and mortgage data. Economists forecast mortgage approvals dropped to 62,000 last month from 63,770 the month prior, and down from their peak of more than 100,000 in November 2020, as average house prices reach an all-time high against falling inflation-adjusted income.

  • More on inflation: Italy releases an August producer price index, Spain publishes a September consumer price index and Germany has producer prices for September. Gross domestic product figures are out in Canada and the US; the latter is forecast to show a decline in the second quarter. (FT, WSJ)

Kuwait parliamentary election The sixth vote in 10 years could be the most democratic ever after Crown Prince Sheikh Mishal al-Ahmad al-Jaber Al-Sabah implemented a broad shake-up of government entities. (Bloomberg)

Porsche begins trading Shares in the luxury carmaker will trade on the Frankfurt stock exchange after its long-awaited flotation. The company is expected to sell shares at €82.5 a piece, the top of its range.

City of London mayor ballot The City of London alderman will decide the next lord mayor, a largely ceremonial role seen as crucial to promoting the UK financial sector.

What else we’re reading

The UK is unprepared for the heatwaves to come Heat — real heat, the type that forced you to cross the street for shade or keep your dog indoors — was once foreign in Britain. But this summer brought 40C temperatures, turning an occasional blessing into a curse. Henry Mance asks, how will it change the country?

Woman mows a lawn
Henry Mance: ‘With our summers turning Mediterranean, we may learn to crave the afternoon nap’ © lllustration by Guillem Casasus

Is Europe’s energy plan enough to get through winter? With temperatures dropping and Russian gas imports at a fraction of former levels, energy ministers are discussing a package of windfall taxes aimed at curbing energy prices. But a growing number of member states warn that proposals do not go far enough and risk sparking political unrest.

AI-driven justice may be better than none at all Countries are beginning to experiment with using artificial intelligence-driven algorithms to mete out court judgments, replacing humans with “robot judges” (although no robot is involved). While some fear automation could reinforce bias, it could tackle backlogs, Jemima Kelly writes.

China’s Big Fund corruption probe casts shadow on chip sector The Chinese Communist party’s deeply feared Central Commission for Discipline Inspection has been running a secretive operation for months. The target: what happened to tens of billions of dollars raised to invest in the country’s semiconductor sector, following allegations of graft and wasteful spending.

  • Power play: China’s government is increasingly taking a back seat to the man who has dominated it for the past decade: President Xi Jinping, who is set to secure a third term in power next month.

Why are musicians cancelling tours? This year was supposed to mark the triumphant return of concerts. But in this late stage of the pandemic, the business of concerts is still very much in flux, as coronavirus disruptions and soaring inflation have made the return to live shows more precarious, writes Anna Nicolaou.

House & Home

Properties in London’s great postwar buildings can go for millions of pounds. Here are some cheaper modernist alternatives to the Barbican.

It is possible to live in the products of some of the greatest minds in postwar architecture for what, by the capital’s standards, are modest prices © Town house by Raglan Squire

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