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Bank of England launches bond-buying programme to prevent ‘material risk’ to UK financial stability | Business News

The Bank of England has launched a temporary bond-buying programme as it takes emergency action to prevent “material risk” to UK financial stability.

It revealed that it would buy as many long-dated government bonds as needed between now and 14th October in a bid to stabilise financial markets in the wake of the mayhem that followed the government’s mini-budget last Friday.

In addition to the plunge in the value of the pound, it has also seen investors demand a greater rate of return for UK government bonds – essentially IOUs.

That is because the level of borrowing required to fund the government giveaway, including tax cuts and energy aid for households and businesses, shocked the market which immediately questioned the sustainability of the public finances.

Cost of living latest

The International Monetary Fund has since added its voice to criticism of the growth plan.

What the Bank’s action is aimed at doing is tackling consequences of rising bond yields, in this instance a liquidity crunch facing pension funds.

WHY THE BANK OF ENGLAND HAS ACTED

 Ian King

Ian King

Business presenter

@iankingsky

There are some very, very specific reasons why the Bank of England is intervening in this particular asset class in long-dated gilts – that’s gilts of a 20 to 30 year duration.

It affects traditional pension funds where a retiree is guaranteed a certain payout at their retirement based on their final salary when they retire.

Now, a lot of these funds use long-dated gilts as part of their investments and what has been happening over recent days is a lot of the investment funds have been asking pension funds to post more collateral – to put up cash.

It has been reported in The Times that actually these cash calls have been running into tens of billions of pounds since the beginning of the week because of this spike in long-dated gilt yields.

That is why the Bank of England is specifically targeting that with this gilt intervention.

It is aimed at seeing off a crisis that’s potentially starting to emerge in pension funds.

The Bank said in a statement: “Were dysfunction in this (long-dated bond) market to continue or worsen, there would be a material risk to UK financial stability.

“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”

The programme marked the Bank’s first policy intervention as it battles to bring down inflation and ease the cost of living crisis. Its chief economist signalled on Tuesday that a “significant” rise in Bank rate was also likely ahead.

The government’s growth plan is only seen as adding inflationary pressure to the economy, leaving it at loggerheads with the Bank’s mandate.

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‘Crisis’ already for Truss government

The Bank said the bond purchases, which would be fully covered by the Treasury in the event of any losses, would be sold back once market conditions had stabilised.

The announcement certainly had an immediate effect on the market.

Data showed that 30-year bond yields fell back to 4.3%, having risen to levels above 5% not seen since 2022 earlier in the day. There were similar falls for 20-year yields.

Those for ten-year bonds also fell back below 4% from 4.6%.

Stock markets, which had endured widespread falls Europe-wide amid recession fears, erased some of their losses.

The FTSE 100 had ben almost 2% down but was just 0.8% lower on the day just before 1pm.

The pound, however, was a cent and a half down versus the dollar to stand at $1.0578 and a cent lower against the euro.

The single European currency was also suffering against a resurgent US currency.

In addition to its bond-buying action, the Bank said it would postpone the start of its efforts to unwind the sale of bonds it acquired through financial crisis and COVID crisis era quantitative easing.

The Bank had planned to reduce its £838bn of gilt holdings by £80bn over the next year.

Neil Wilson, chief markets analyst at Markets.com, said the Bank’s move followed evidence of “severe liquidity stress”.

This would have been particularly evident for pension funds who have faced demands for additional cash to cover off rising yields.

“The question is whether (this Bank action) acts to stabilise longer-term or if the market retests the Bank’s resolve”, he wrote.

“We’re now seeing the Bank go toe-to-toe with the market and this might not lead to any decrease in volatility”, he warned.

Ukraine war: UK programme to train ‘citizen soldiers’ is expanding | UK News

The UK is significantly expanding a training programme in Britain to turn potentially tens of thousands of Ukrainian recruits into frontline soldiers to fight Russia, Sky News has learnt.

The combat course is being extended in length to five weeks from three weeks, keeping more of the training in the UK, away from the threat of Russian missile strikes – a hazard for anyone learning how to become a soldier at sites inside Ukraine, it is understood.

Some 4,700 personnel have already been through the training at military bases in the north, southwest and southeast of England since it began in June, with commanders intending to continue the support for as long as Ukraine needs new troops to fight Russia’s invasion.

The UK is significantly expanding a training programme in Britain to turn potentially tens of thousands of Ukrainian recruits into frontline soldiers to fight Russia
Image:
Pic: MoD

Military instructors from eight other countries, including New Zealand, Sweden and the Netherlands, have joined with their British counterparts to provide the expanded training mission.

Ben Wallace, the defence secretary, said it demonstrated “our shared resolve to support the Armed Forces of Ukraine”.

Defence Secretary Ben Wallace visits UK troops training Ukraine citizens to be soldiers. The UK is significantly expanding a training programme to turn potentially tens of thousands of Ukrainian recruits into frontline soldiers to fight Russia. Pic: Ministry of Defence
Image:
The defence secretary said meeting the Ukrainians learning to fight was ‘humbling’. Pic: MoD

In quotes released to Sky News by the Ministry of Defence, confirming the expanded programme, Mr Wallace said the training course had “developed rapidly, and we are now extending it to five weeks to provide the best possible preparation for Ukrainian soldiers who will soon be in active combat operations”.

He added: “Meeting those citizen soldiers and witnessing first-hand their courage and determination is a humbling experience.

More on Ministry Of Defence

“We must do everything we can to help them defend their homes against this illegal and unprovoked Russian invasion, and will continue to do so for as long as it takes. We stand with Ukraine.”

Read more:
Volodymyr Zelenskyy hails Ukrainian air force ‘defenders of the sky’, Zaporizhzhia power plant remains under the spotlight – and all live updates

British troops take part in cold weather training with Swedish and Finnish armed forces

The UK is significantly expanding a training programme in Britain to turn potentially tens of thousands of Ukrainian recruits into frontline soldiers to fight Russia. Pic: Ministry of Defence
Image:
Pic: MoD

Mr Wallace has paid four visits to check up on the training, including most recently on Friday.

Advanced training

A defence source said this was an indication that while “many politicians have been distracted by a summer leadership competition”, the defence secretary “only cares about keeping Ukrainians in their fight for national survival”.

If, as expected, Liz Truss becomes prime minister, Mr Wallace is tipped to retain his job as defence secretary.

Other countries taking part in the training programme to help Ukraine comprise Canada, Denmark, Finland, Norway and Lithuania.

The main course on offer is based on the UK’s basic infantry training. It includes weapons-handling, battlefield first aid, fieldcraft and patrol tactics.

The extra two weeks will allow for more advanced training, such as trench and urban warfare, vehicle-mounted operations, and battlefield exercises in simulated combat environments.

The training is being conducted by elements from the British Army’s 11 Security Force Assistance Brigade and the RAF Regiment, alongside international instructors.

Tory leadership race: Rishi Sunak wins over audience in Sky News’ Battle for Number 10 programme | Politics News

Rishi Sunak was deemed to have won Sky News’ Battle for Number 10 after the majority of audience members voted for him over rival Liz Truss.

Ms Truss and Mr Sunak faced tough challenges from Conservative members who are mostly undecided, followed by questions from Sky News’ Kay Burley.

After the pair put forward their arguments for why they should replace Boris Johnson as leader of the Tory party, and therefore prime minister, the audience members were asked who they thought had won the argument.

The audience, made up of Conservative Party members, convincingly backed Mr Sunak in a show of hands, rather than Ms Truss – who has been winning polls since the battle was whittled down to two.

Live updates: Truss says recession ‘not inevitable’; Sunak told he ‘knifed’ Johnson

Read more: Truss refuses request to apologise over public sector pay policy U-turn

Ms Truss put herself forward as the candidate of integrity, repeatedly saying she will always listen to people and will do something different if a policy is not working.

She said a recession is “not inevitable”, hours after interest rates were hiked, and promised “bold” action compared with Mr Sunak’s caution.

However, former chancellor Mr Sunak said Ms Truss’ vision “will make the situation worse” as he reminded audience members of his financial actions to help people during the COVID pandemic.

He stressed a need to get a grip on runaway inflation before cutting taxes, adding: “But it all starts with not making the situation worse.

“Because if we just put fuel on the fire of this inflation spiral, all of us, all of you, are just going to end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions.”