Bank of England signals ‘significant’ response to pound turmoil

Bank of England chief economist Huw Pill Budget Kwasi Kwarteng interest rates inflation -  Hollie Adams/Bloomberg
Bank of England chief economist Huw Pill Budget Kwasi Kwarteng interest rates inflation - Hollie Adams/Bloomberg

The Bank of England’s chief economist warned it is crucial the Bank of England’s independence is respected as he signalled to volatile markets that significant interest rate rises are on the way in November.

Huw Pill was speaking as long-term borrowing costs hit their highest level since 2002 on the third consecutive day of market turmoil following the Chancellor’s heavy borrowing mini-budget on Friday.

As markets around the world showed signs of mounting volatility, Mr Pill said “it is crucial that the underlying macro policy institutional framework remains credible. It is important that all actors are both respected in terms of what their responsibility is, what their objective is and what their intention is.”

He hailed the Government’s “clear commitment in announcing a clear timetable to clarify the Government’s new fiscal rules and to submit to the independent external scrutiny of the OBR,” which followed last week’s promise by Kwasi Kwarteng that the Bank’s own independence is “sacrosanct”.

Mr Pill warned the tax cuts announced last week are going to push up interest rates further.

“The combination of fiscal announcements we have seen will act as a stimulus to demand in the economy,” he said.

“It is hard not to draw the conclusion that all this will require a significant monetary policy response.”

However he echoed the message of Andrew Bailey, the Bank’s Governor, that officials do not need to hold an emergency meeting to raise rates again, so soon after last week’s move which took the base rate from 1.75pc to 2.25pc. Financial markets expect rates to rise to above 6pc by early next year.

“The better way to run monetary policy is to adopt a more considered approach, a lower frequency approach,” he said, adding that the Bank has “limitations” in its ability to “fine tune” markets or the economy.

Kwasi Kwarteng, the Chancellor, revealed he is holding daily talks with Mr Bailey after the sharp falls in the pound and leaps in Government borrowing costs in the wake of last Friday’s heavy-borrowing mini-budget.

Mr Kwarteng sought to reassure City bosses about the Government’s plans at a meeting on Tuesday, telling insurance and asset management executives that he is “confident” his economic strategy will work.

He said: “We are confident in our long-term strategy to drive economic growth through tax cuts and supply-side reform. Supply-side reforms are critical - increasing capacity brings down prices. We are committed to fiscal discipline, and won’t reopen the spending review.”

The Chancellor is also set to meet with top Wall Street bankers on Wednesday as he seeks to calm market fears.

The comments failed to shore up bond markets, where the cost to the Government of borrowing for 30 years hit 5pc in a leap from just under 3pc a month ago. This represents the highest long-term borrowing costs in 20 years.

It now costs Britain twice as much as Germany to borrow for a decade. This is the biggest gap in borrowing costs between the two nations since 1991.

While the Treasury can borrow for a decade for 4.5pc, the US pays just 3.9pc.

Mr Pill said the fall in the pound and British assets is part of a wider global move, while interest rate increases are part of a “normalisation” of policy after the years of low rates following the financial crisis.

The plunge in markets - which he described as a “repricing” rather than as a sign of dysfunction - “has to be seen as part of a global process”.

US stocks dropped 0.5pc on Tuesday, with the Eurostoxx index also down 0.4pc.

But the Bank’s chief economist acknowledged that the UK appears to be being hit harder than other countries by the worldwide move into US assets, which has pushed the dollar up sharply against most other currencies.

“There is very clearly a UK-specific element to developments we have seen in financial markets,” Mr Pill said.

“We have all seen significant fiscal news. That has had significant market consequences.”

Business bosses broke cover to call for policies to be reversed.

Shai Weiss at Virgin Atlantic suggested the Government “take more difficult decisions to reverse the decline of the pound”.

Tim Congdon, a former economic advisor to Margaret Thatcher, said he is “horrified” by Mr Kwarteng's borrowing.

06:01 PM

​Wrapping up

That's all from us, thank you for following! Before you go, check out the latest stories from our reporters:

05:58 PM

Mortgage products drop 9pc amid turmoil in the markets

Mortgage -  Hollie Adams
Mortgage - Hollie Adams

As HSBC joined the list of banks pulling mortgage products ahead of an anticipated interest rate rise, brokers warned there were people who were being "left stranded".

Figures from Moneyfacts Group suggested that the number of mortgage products available on the UK market slumped 9pc between last Friday morning and this morning, down at 3,596 from 3,961.

Ray Boulger, a manager at loan broker John Charcol, said: "Some lenders have given no notice, and with some we are getting emails during the day saying rates are being pulled at 5pm. There will be undoubtedly be people in the process of securing their mortgage who will miss the boat.”

05:43 PM

Credit Suisse loses key dealmaker to Citi

Credit Suisse - Walter Bieri/KEYSTONE
Credit Suisse - Walter Bieri/KEYSTONE

Credit Suisse has lost a veteran dealmaker to Citigroup, reports Patrick Mulholland, as an exodus of senior executives threatens to upend the troubled bank’s turnaround plans.

Jans Welter is leaving Credit Suisse after less than nine months as its co-head of global banking, ending 27 years with the bank, to become Citi’s new co-head of European investment banking, reported the Financial Times. 

Earlier this month, it was revealed that Credit Suisse is considering a move to split its investment bank into three, including a “bad bank”, which will act as a holding pen for high-risk assets. 

It is anticipated that the restructuring plans – including around 4,500 job cuts – will be made public at the Swiss lender’s upcoming third-quarter results day on October 27.

05:28 PM

Energy crisis is hampering electric car ambitions, Chinese manufacturer says

All eyes might be on how governments are coping with the energy crisis, but companies are also facing the fallout from spiralling costs.

Nio, the Chinese electric car maker which has been likened to Tesla, said on Tuesday that it was "behind schedule regarding the swap station installation, but that is driven by multiple reasons and the electricity cost is one part". Nio replaces the batteries in its cars via "swap stations", rather than recharging them as rivals do.

Speaking to the Financial Times, Nio's founder William Li warned rising prices for raw materials would also make it trickier to become profitable in the near future.

The signs of pressure from higher energy prices on the electric car sector comes after figures earlier this week suggested recent months had seen a major pick-up in prices.

Figures from the RAC showed drivers would have to spend 42pc more than they would at the start of the summer to recharge their electric cars due to the "enormous increases in the cost of electricity".

05:11 PM

UK's 30-year bond yield hits highest level since 2002

Huw Pill's comments that a 'significant' response was needed to Chancellor Kwasi Kwarteng's fiscal policies drove long-dated bond yields up sharply.

As Bloomberg reports: "A relief rally in UK government debt faltered Tuesday as investors braced for fresh bond supply and as Bank of England Chief Economist Huw Pill made the case for tighter monetary policy to contain inflation.

"The losses were led by the long-end of the curve, with 30- year yields rising as much as 47 basis points to 5.01pc, the highest since 2002. The UK government is preparing to sell more of an outstanding 2053 green gilt as early as Wednesday, and is expected to ramp up bond offerings further to finance government stimulus measures announced last week."

05:01 PM

Gold struggles even as uncertainty ramps up

Gold - Luke MacGregor/Bloomberg
Gold - Luke MacGregor/Bloomberg

Economists at ING have been looking at why gold prices - which are typically stronger in times of uncertainty - have in fact been falling.

Warren Patterson, head of commodities strategy, says spot gold is now trading "at its lowest levels in more than two years and has fallen more than 20pc from its recent peak in March, pushing it into a bear market". 

"Despite sticky inflation, real yields have also been climbing. 10-year real US yields have reached their highest levels in more than a decade and are firmly back in positive territory. Given the strong negative correlation between gold prices and real yields, it is not surprising to see that gold has struggled in this rising yield environment.

"While in the short term we suspect gold prices will remain under pressure due to monetary tightening, we will need to keep an eye on signals from the Fed. Any hints of an easing in its aggressive hiking cycle should start to provide some support to gold prices. "

04:42 PM

Eurostar raises prices and cuts services as cost-of-living crunch hits

Eurostar - TOLGA AKMEN/AFP
Eurostar - TOLGA AKMEN/AFP

Eurostar is having to focus its services "on core routes which make the maximum contribution per train and to charge higher prices to our customers", according to outgoing chief executive Jacques Damas.

In a letter to the House of Commons transport select committee, Mr Damas said Eurostar was unable to "currently pursue a strategy of volume and growth”.

It comes after the Telegraph revealed last weekend that the company risked having to enter back into emergency talks with investors, as it battles the fallout from the cost-of-living crisis.

The company, which operates the Channel Tunnel, warned in its latest accounts that lower economic growth, a recession or “high levels of inflation reducing the disposable incomes of potential customers”, with the potential that lower bookings could cause Eurostar to breach promises to its lenders.

Read the full article here. 

04:26 PM

Economists slash forecasts and predict global recession

Capital Economics has issued a gloomy update this afternoon, amid growing expectations that more interest rate rises will come down the line.

Jennifer McKeown, head of  Capital Economics's Global Economics Service, said: "It is now clear that central banks in advanced economies will raise interest rates even further than our above-consensus forecasts had implied, making the current tightening cycle the most aggressive in three decades.

"While this may be necessary to tame inflation, it will come at a significant economic cost. We are downgrading several of our economic forecasts and now anticipate a global recession."

04:10 PM

£100m pharma fine 'manifestly wrong', lawyers argue

Meanwhile, in London courts, a £100m fine levied at a pharmaceutical company and its former private equity backers for inflating the price of crucial NHS medication has been branded "manifestly wrong".

The backers - Hg Capital and Cinven - and pharma company Advanz Pharma have begun an appeal of the fine, which was handed out in July last summer by the Competition & Markets Authority.

At the time, the CMA had said it wanted to send a "clear message to the pharma sector that breaking the law will not be tolerated" after an investigation found that Advanz had increased the price of tablets used to treat thyroid hormone deficiency by 1,110pc over eight years.

At a London court, lawyers for private equity firm Cinven said the decision to levy the fine was “manifestly wrong".

Hg's lawyer said: "The CMA is not a sectoral regulator, it is a competition authority charged with applying competition rules."

Advanz did not immediately respond to requests for comment but, when handed its portion of the fine, had said it "utterly disagrees with the CMA's decision on the pricing of liothyronine tablets and will be appealing".

"At all times, Advanz Pharma acted in the interest of patients, investing significantly to keep this medicine on the market to the specifications required by the Medicines and Healthcare products Regulatory Agency (MHRA)."

03:56 PM

Sterling recovering but 'not out of the woods'

Efforts to soothe market concerns do appear to be paying off, analysts said on Tuesday.

Stuart Cole, head macro economist at Equiti Capital, said: "I think the statements from the Bank of England and the Treasury have helped the pound.

"The BoE saying it won't change course has helped the recovery in sterling as it conveys a message that there's no sense of panic at the central bank... Sterling is not out of the woods by any means.

"The BoE are required to tighten interest rates which will exacerbate the slowdown in growth."

03:44 PM

Handing over

That's all from me today – thanks for following along! Hannah Boland will see you through to the end of the day.

03:42 PM

Pill: Energy support avoids 'extreme peaks' in inflation

Back to Huw Pill now. Here’s more from my colleague Tim Wallace, who’s at the event:

Huw Pill says the UK energy support package avoids “extreme peaks” in inflation and “frees monetary policy to do its job” of tackling inflation in the medium term.

“That freedom will have to be used”, he says, suggesting higher rates are on the way.

The BoE chief economist adds that one reason they predicted such a recession in August was that, unlike in other countries, political circumstances meant the UK Government had to wait to roll out a big energy package.

He Indicates the Bank will be more positive on growth in its November forecasts, which may also mean more rate rise.

03:37 PM

Sir Keir Starmer pledges publicly-owned energy company

Keir Starmer GB energy Labour - Anthony Devlin/Bloomberg
Keir Starmer GB energy Labour - Anthony Devlin/Bloomberg

Labour would create a publicly-owned energy company within its first year in office, Sir Keir Starmer has announced.

Speaking at the party conference in Liverpool, the Labour leader said Great British Energy would take advantage of opportunities in clean British power.

Sir Keir said the move was "right for jobs, right for growth and right for energy independence from tyrants like Putin."

The Labour leader told delegates that at the moment the largest onshore wind farm in Wales was owned by Sweden, energy bills in Swansea were paying for schools and hospitals in Stockholm, the Chinese Communist party had a stake in the UK's nuclear industry and 5m Britons paid their bills to a French-owned energy company.

The role of GB Energy would be to provide additional capacity, alongside the rapidly expanding private sector, to establish the UK as a clean energy superpower and guarantee long term energy security, Labour added.

03:29 PM

HSBC pulls mortgage products

HSBC is removing new business, residential and buy-to-let mortgage products from sale for the rest of the day amid turmoil in markets.

In an email to mortgage brokers, the bank said: "Our existing customer switching ranges will still remain available for UK residential and buy-to-let customers during this time."

It comes after Santander temporarily pulled some of its mortgages for new customers, while Nationwide said it was raising rates across its new and existing borrower product ranges.

03:24 PM

Pill: We'll raises rates even if it's unpopular

Huw Pill acknowledges raising rates is "unpopular" and conditions might be "uncomfortable" in financial markets, but says central banks have to "do the right thing" regardless.

03:14 PM

Borrowing costs hit fresh high

Long bonds were slumping even before Huw Pill stood up to speak, but the gloom has spread further.

Yields on 10-year gilts have now jumped to a fresh 12-year high of 4.3pc.

That means it will cost the Government even more to borrow money to fund its big tax-cutting plan.

02:56 PM

Pill: More considered approach to monetary policy is better

While Huw Pill has hinted at aggressive monetary policy tightening by the Bank of England, he pushed back against calls for emergency action.

The Bank's chief economist said: "The better way to run monetary policy is to adopt a more considered approach and low-frequency approach."

02:54 PM

Pound ticks higher after Huw Pill comments

Sterling has pushed slightly higher after BoE chief economist Huw Pill hinted at a "significant" monetary policy response to come.

The pound is up 0.8pc against the dollar at around $1.07, though it remains off its highs for the day.

02:24 PM

Debt costs continue to soar as 30-year gilt hits highest since 2007

There's more pain for government borrowing as the 30-year gilt yield surged to its highest since 2007.

Bonds reversed earlier gains to slump on concerns over fiscal and monetary policy. The yield rose 29 basis points to 4.8pc, while shorter-dated bonds also trimmed their rally.

Chancellor Kwasi Kwarteng has vowed to stick by his tax-cutting economic plan despite the sell-off across markets.

02:13 PM

Great Western Railway engineers to strike in October

GWR train strikes - Hollie Adams/Bloomberg
GWR train strikes - Hollie Adams/Bloomberg

Around 350 Great Western Railway engineers will strike next month, adding to the travel misery for passengers.

They will join thousands of rail workers across the country striking on October 1, union Unite said.

Read more on this story: Train strikes: new date added for October rail walkouts

02:00 PM

Banks will cut mortgage offers by £90,000 as interest rates soar

Home buyers face severe restrictions on the amount they can borrow, as rocketing interest rates force banks to limit mortgage offers, writes Melissa Lawford.

In some cases customers could be able to borrow £90,000 less than previously expected.

Markets expect Bank Rate to peak at 5.9pc in June 2023 and this has been priced into the interest rate “swaps market”, which banks use to price the mortgages offered to consumers.

Chancellor Kwasi Kwarteng’s “mini-Budget” was followed by a drop in the pound to a record low and triggered fears of even higher inflation and interest rates.

Swap rates directly influence the cost of fixed-rate mortgages. A Bank Rate at nearly 6pc would push mortgage rates up to in excess of 7pc, analysts said.

But long before rates actually reach this level, the expectations of soaring rates will reduce the size of mortgages that banks are willing to lend.

​Read Melissa's full story here

01:47 PM

Kwarteng to set out financial reforms next month

The Chancellor will set out his plans to overhaul financial regulations to boost growth next month.

Mr Kwarteng said it's his "top priority" to liberalise financial services, vowing to "sort out" Solvency II rules governing insurers and make regulators more "nimble".

12:32 PM

Germany suspects sabotage in Nord Stream pipeline leaks

Germany suspects the damage to the Nord Stream pipeline system used to carry Russian gas to Europe was the result of sabotage.

The evidence points to a violent act, rather than a technical issue, a German security official told Bloomberg. In response to the pipeline leaks in the Baltic Sea, Denmark is tightening security around energy assets.

It’s the clearest signal yet that Europe will have to survive this winter without any significant Russian gas flows, as EU leaders repeatedly accuse Moscow of weaponising energy supplies.

Mette Frederiksen, Denmark’s prime minister, told reporters: “It’s hard to imagine that these are coincidences. We can’t rule out sabotage.”

The Kremlin said that before the results of an investigation it was “premature” to speculate on whether the damage was related to sabotage.

12:12 PM

Wall Street to rebound after sell-off

Wall Street looks set to rebound this afternoon following a bruising sell-off over the last few sessions that confirmed the Dow Jones has been in a bear market for most of this year.

Concerns about corporate profit coming under pressure from soaring prices, an economic downturn and higher interest rates have roiled US stocks in the past two weeks, pushing the S&P 500 to new closing lows for the year yesterday.

But futures rallied this morning, driven by gains for tech and oil stocks.

Futures tracking the S&P 500 rose 1.1pc, while the Dow Jones gained 0.9pc. The tech-heavy Nasdaq rose 1.3pc.

12:01 PM

House prices to fall by as much as 15pc if interest rates hit 6pc

House prices are set to fall by as much as 15pc as higher interest rates slash buyers’ spending power, economists have warned.

Tim Wallace has more:

Capital Economics and Credit Suisse both estimate prices could fall by between 10pc and 15pc if interest rates rise to 6pc as financial markets predict.

“Were Bank Rate to rise from 2.25pc now to 6.1pc in June 2023 as is currently priced in, quoted mortgage rates might rise from 3.6pc last month to about 6.6pc, a level last reached in 2008,” Andrew Wishart at Capital Economics said.

Mortgage debts are larger now than they were in 2008, as property prices are higher and buyers must borrow more to secure a home. As a result, higher rates will put an even larger strain on owners’ finances than during the financial crisis.

“At the current level of house prices, an increase in mortgage rates to 6.6pc would cause the cost of repayments on a new mortgage to rise to their highest level since 1990,” Mr Wishart said.

This is “potentially a handbrake on how much people can borrow and can afford to bid for properties.”

Read Tim's full story here

11:46 AM

Helena Morrissey steps down as AJ Bell chair amid FCA row

Helena Morrissey AJ Bell -  David Rose
Helena Morrissey AJ Bell - David Rose

Baroness Helena Morrissey has resigned as chairman of AJ Bell following a disagreement with the City watchdog over a job change for founder Andy Bell.

Mr Bell, who set up the investment platform 27 years ago, announced plans in June to step down as chief executive and take up the role of deputy chairman.

But AJ Bell today said the Financial Conduct Authority had opposed the move, citing concerns about governance if Mr Bell remained on the board.

Baroness Morrissey – a high-profile City executive – is now stepping down after just nine months in the role. The company said she believed it was the right thing for her to step aside so a new chair can take the board forward.

11:32 AM

£460bn wiped off UK markets since Truss took over

Liz Truss UK markets $500bn - WPA Pool/Getty Images
Liz Truss UK markets $500bn - WPA Pool/Getty Images

The UK's stock and bond markets have lost at least $500bn (£460bn) in value since Liz Truss took over as prime minister.

Ms Truss took over at a time when Britain was already on the brink of recession, but last week's tax-slashing Budget has stoked concerns about higher inflation and borrowing.

More than $300bn has now been wiped off the FTSE 350 since the new Prime Minister was confirmed on September 5, according to data compiled by Bloomberg.

In that time, a UK government bond index has lost over £160bn, while sterling-denominated, investment-grade bonds have lost $29bn.

11:15 AM

Rich could be taxed to help poor, says ECB chief

High earners and extremely profitable companies could pay more taxes to finance support for society's poorest as they struggle with record inflation, the ECB's chief economist has said.

Philip Lane told Austrian newspaper Der Standard: "The energy shock we are experiencing is huge. It is the poorest people in our society that are most affected."

He said governments needed to support those suffering the most, and the question was whether this should be financed by tax hikes for the better off.

Mr Lane added: "This could take the form of higher taxes on higher earners or on industries and firms that are highly profitable in spite of the energy shock."

Increasing taxes has less of an impact on inflation than if you increase public deficits to provide support, he said.

The comments come in stark contrast to Kwasi Kwarteng's mini-Budget last week, which scrapped the additional rate of income tax for the highest earners.

10:47 AM

Banks guarantee low mortgage rates for nine months

Banks and building societies are offering to guarantee mortgage rates for an unprecedented nine months to help borrowers avoid ruinously high repayments next year.

Charlotte Gifford reports:

Normally homeowners are able to lock into a fixed-term mortgage rate around three months before the existing deal expires, so long as they stay with their lender.

But major lenders including Barclays, First Direct, HSBC and NatWest are letting customers begin a “product transfer” between four and six months before their current deal comes up for renewal.

Simon Gammon of Knight Frank said Nationwide was offering the most generous window – “they give you up to three months in which to get the mortgage offer approved and then you have six months to use it”, he said.

In effect this guarantees the rate for nine months.

By getting a new deal now, borrowers could stand to save hundreds if not thousands of pounds.

Read Charlotte's full story here

10:27 AM

UK facing 'painful' recession, warns Deutsche Bank

Deutsche Bank's chief economist has said he expects the UK to enter a "deep and long" recession as the Bank of England plays catch-up to control inflation.

David Folkerts-Landau told Bloomberg: "We're thinking in terms of a recession that will be deep and long. That's the price we have to pay for financial stability and getting on the right track."

Mr Folkerts-Landau said the BoE was two to three percentage points behind where it should be, adding it would be a "little risky" to wait until the next scheduled meeting in November to make a move.

Still, he reckons it's more likely the pound will climb back to $1.15 than hit parity.

He said: "The Bank of England has been late in raising rates and in too small amounts. Rates have to go up significantly."

10:13 AM

German finance minister wary of UK's fiscal 'experiment'

Germany Christian Lindner - John MACDOUGALL / AFP
Germany Christian Lindner - John MACDOUGALL / AFP

German finance minister Christian Lindner has raised doubts over the Government's plans to ramp up spending while the central bank tightens policy to control inflation.

Speaking at an event last night, he said: "In the UK, a major experiment is starting as the state simultaneously puts its foot on the gas while the central bank steps on the brakes.

"I would say we wait for the results of this attempt and then draw the lessons."

Mr Lindner, the hawkish head of the pro-business Free Democrats, has been pushing Germany to return to constitutional debt limits after breaches during the pandemic.

He's said that further government support packages would undermine measures taken by central banks to fight inflation.

He said: "We must not counteract the central bank's policy of rising interest rates by sending fiscal stimulus for demand or for growth.

"The expansionary fiscal policy of the past years has certainly also contributed to the fact that we are seeing such inflationary developments."

10:00 AM

Emergency BoE meeting would have made sense, says former Deputy Governor

A former Deputy Governor of the Bank of England said he would likely have advised the central bank to call an emergency meeting following market turmoil this week.

Charlie Bean said such a move would have made sense, but added that the lesson of emergency interventions was "you go big, and you go fast".

He told the BBC:

On this occasion if I had still been at the bank in my role as deputy governor I certainly would have been counselling the Governor that I think this is one of those occasions where it might have made sense.

The key thing is, if you call it, you have to take significant action.

09:45 AM

Bin firm Biffa agrees £1.3bn takeover

Biffa is by far the biggest market mover this morning after it agreed a £1.3bn takeover deal by a US investor.

The waste management firm said Bears Bidco, a new company run by Energy Capital Partners, will pay 410p per share.

It comes three months after Biffa told shareholders it was likely to accept a £1.4bn bid from ECP.

Shares surged more than 28pc to the top of the FTSE 250.

Ken Lever, chairman of Biffa, said:

Whilst being lower than the proposal previously announced on June 7, it is the Biffa board's view that this offer represents a compelling opportunity, particularly in a weakening economic environment, for shareholders to realise, in cash and with certainty, the potential for future value creation.

09:33 AM

Ofgem tells energy suppliers to do more to help struggling customers

Energy regulator Ofgem has told two household suppliers to better monitor and help struggling customers ahead of another jump in bills.

Gas and electricity costs will almost double on October 1 compared to last winter. While Liz Truss has stepped in to cap bills at £2,500 per year, that will still leave many consumers unable to pay bills.

Ofgem called out Scottish Power and Utilita Energy for having "severe" weaknesses in the way they deal with customers with payment difficulties.

A review of suppliers found issues with lack of policy and management oversight that was tailored to struggling customers and a lack of adequate training materials for staff.

Jonathan Brearley, chief executive of Ofgem, said:

We accept that there are many pressures on energy companies in the market this winter, but the needs of vulnerable customers must be part of their top priorities.

09:20 AM

Mystery gas leaks hit Russian pipelines to Europe

Away from the pound chaos, there's more trouble afoot with Russian gas supplies.

European countries are scrambling to investigate unexplained leaks in two Russian gas pipelines running under the Baltic Sea near Sweden and Denmark.

Sweden issued a warning about two leaks in the Nord Stream 1 pipeline, shortly after a leak on the nearby Nord Stream 2 pipeline was discovered that had prompted Denmark to restrict shipping in a five nautical mile radius.

Both pipelines have been at the centre of an escalating energy war between Europe and Moscow that has sent gas prices soaring and risks sparking a recession across the bloc.

Neither pipeline was pumping gas to Europe at the time leaks were found, but the incidents will hinder any effort to start or restart supplies.

09:06 AM

George Osborne weighs in on market chaos

Former Chancellor George Osborne has some choice words about yesterday's turmoil.

Kwasi Kwarteng, the current incumbent in Number 11, is among those to have shrugged off market reaction...

08:57 AM

Pound still vulnerable, says short-seller Crispin Odey

Crispin Odey pound -  JULIAN SIMMONDS
Crispin Odey pound - JULIAN SIMMONDS

Crispin Odey, the hedge fund tycoon who's known for shorting pound, reckons the worst isn't over for the British currency.

The money manager said it will take a long time for the UK to get inflation under control and predicted that the Bank of England is unlikely to roll out emergency interest rate rises.

"That will be too much of a panic," he told Bloomberg. "I think sterling is still quite vulnerable and we have to see how it goes."

Mr Odey's bets against the pound have sparked outrage, with critics saying he's profited from the UK's economic woes after backing Brexit.

He made around £220m in a day when the pound slumped in June 2016 following the vote to leave the EU, though he lost that money within weeks as markets rallied.

His flagship Odey European hedge fund has surged 140pc over the last year, largely driven by short wagers on government bonds, according to the report.

08:41 AM

FTSE risers and fallers

The FTSE 100 has climbed this morning as traders keep a close eye on comments from BoE chief economist Huw Pill after yesterday's plunge in the pound.

The blue-chip index rose 0.6pc, boosted by gains for mining stocks.

Anglo American, Rio Tinto and Glencore were among the top risers, tracking metal prices higher.

Lloyds slipped 0.3pc after Halifax said it had temporarily withdrawn all of its mortgage products that came with a fee, while insurer Admiral Group shed 4.5pc after a share placing.

The domestically-focused FTSE 250 rose 0.8pc. Waste firm Biffa surged 29pc after it agreed to a £1.3bn takeover by a US investor.

08:20 AM

Banks pull mortgages from sale amid interest rate chaos

ICYMI – here's our top story of the morning:

Banks have withdrawn mortgage deals in anticipation of a rate rise from the Bank of England to counter the turmoil facing the pound in the wake of last week's mini-budget.

Halifax, Virgin Money and Skipton were among providers to take the step.

The lenders acted after a day of wild swings on currency markets which saw the pound fall to a record low of less than $1.04 against the dollar and a big sell-off of British government gilts.

The chaos led the Treasury to issue a statement pledging to set out its approach to managing the public finances, followed minutes later by the Bank of England saying it was watching markets carefully and wouldn't hesitate to increase rates at its next meeting.

Markets now expect rates to rise sharply in the coming months - with traders predicting they will hit 6pc mid way through next year, which would add £800 to the monthly cost of a typical mortgage.

Mr Kwarteng has publicly played down any concerns about sterling movements in recent days and yesterday declined to comment on recent drops.

Read the full story here

08:02 AM

FTSE 100 opens higher

The FTSE 100 has gained ground at the open as calm returns to the markets after yesterday's turmoil.

The blue-chip index rose 0.4pc to 7,046 points.

07:58 AM

Markets bet pound will fall below parity

Sterling may be regaining some ground this morning, but markets are still gloomy on the outlook.

Traders are betting there's a 43pc chance the pound sill tumble to just $1 before the end of the year. At the same time, analysts at banks including Morgan Stanley and Nomura said they expect it to touch or cross that level.

Jordan Rochester, a strategist at Nomura, told Bloomberg: "I think it's going to get worse unfortunately. I don't want it to be worse. This is the country I earn my money in."

07:41 AM

Kwasi Kwarteng to meet top bankers

Chancellor Kwasi Kwarteng -  JEFF OVERS/BBC
Chancellor Kwasi Kwarteng - JEFF OVERS/BBC

Kwasi Kwarteng is due to meet senior bankers today in what could turn out to be a difficult encounter.

The meeting was scheduled as a polite conversation about the Chancellor's plans to drive economic growth. The crisis in the pound and government bonds may turn it into more of a crisis summit.

Shares in British banks and insurers have taken a beating since Mr Kwarteng’s mini-Budget on Friday shocked markets and triggered questions about how Prime Minister Liz Truss’s new administration will pay for its huge tax-cutting and energy support measures.

Bankers were meant to be wowed by measures such as the end of a cap on their bonuses and the scrapping of the 45pc top tax rate, but yesterday's market meltdown has put paid to that.

07:34 AM

Pound will tumble below €1, warns former US Treasury Secretary

Forget parity with the dollar – some experts think the pound will soon be less than €1.

Among them is former US Treasury Secretary Lawrence Summers, who's published a Twitter screed about the gloom facing the British currency.

He brands last week's mini-Budget "utterly irresponsible" and blasts both the Government and Bank of England for their lack of credibility.

"The magnitude of Britain’s trade current account deficit underscores the seriousness of its challenges," he says. "My guess is that pound will find its way below parity with both the dollar and euro."

A final warning from Mr Summers is that the pound crisis will affect London’s viability as a global financial center.

07:23 AM

Pound rebounds after record low

Sterling has rebounded sharply after dropping to an all-time low on Monday as markets began to regain some composure.

The pound, which touched an all-time low of less than $1.04 yesterday, climbed 1.3pc in early trading to above $1.08.

Markets may have been reassured by yesterday's statements from the Treasury and Bank of England, although Andrew Bailey's insistence that the Bank wouldn't hesitate was far from convincing for many.

Still, sterling isn't out of the woods yet, with traders betting there's more than a 40pc chance of it hitting parity with the dollar by the end of the year.

06:41 AM

What happened in 1985 when the pound was last this low

The last time the pound was trading at these levels against the dollar Margaret Thatcher was halfway through the second term of her premiership, the miners’ strike was coming to an end and Eastenders had just debuted on BBC One.

Before this week, sterling’s nadir against the dollar came on February 26, 1985. Britain was, in many ways, far removed from the country it is today but with some enduring similarities.

On that wet and hazy Tuesday morning in the City of London, traders watched their screens as sterling tumbled, closing the day at $1.052 — a record low that held for more than 37 years.

Then, it was the overwhelming strength of the dollar, the world’s reserve currency, that drove sterling’s decline.

Read the full story by Simon Foy here

05:10 AM

Markets doubt Bailey can avoid emergency rate rise

Andrew Bailey has failed to convince markets that he can avoid an emergency interest rate rise after the pound slumped to a record low.

In a statement issued on Monday evening, Mr Bailey insisted that although Threadneedle Street was "monitoring developments in financial markets very closely," the Bank does not expect to take any action until its next scheduled meeting in November.

The intervention sparked a further slump in sterling, sending it back down by 1.7pc below $1.07.

Read the full story by Tim Wallace here

Andrew Bailey, governor of the Bank of England - Bloomberg
Andrew Bailey, governor of the Bank of England - Bloomberg

04:56 AM

Good morning

5 things to start your day

1)  Markets doubt Bailey can avoid emergency rate rise after plunge in pound The Bank of England Governor has failed to convince traders that action can wait until November after the pound plunged on Monday.

2) Mortgage payments to surge by almost £10,000 a year if interest rates hit 6pc Markets are betting on a punishing series of rate rises that would pile pressure on hundreds of thousands of borrowers

3) Doncaster Sheffield Airport to close in blow for levelling up agenda Liz Truss previously pledged to “protect this airport and this infrastructure”

4) Ericsson keeps supplying Russia despite Ukraine invasion The Swedish telecoms company applied for exemptions after attack on Russia's neighbour.

5) Britain should have a nuclear reactor fleet to rival France The case for atomic power to restore our energy system to peak fitness is clear, writes Dr Tim Stone.

What happened overnight  

Stocks were mixed in Asia on Tuesday after closing broadly lower on Wall Street, where the Dow Jones Industrial Average fell into what's known as a bear market.

Tokyo, Sydney and Shanghai advanced while Hong Kong and Seoul declined. US futures rose and oil prices also were higher.

Hong Kong stocks opened down on Tuesday morning, with the Hang Seng Index plummeting 0.09pc, or 16.49 points, to 17,838.65.

The Shanghai Composite Index ticked up 0.17pc, or 5.17 points, to 3,056.39, while the Shenzhen Composite Index on China's second exchange added 0.31pc, or 6.08 points, to 1,955.08.

Coming up

Economics: Consumer confidence (US), house price index (US)

Corporate: Ergomed, A.G. Barr (interim results)