The Bank of England warned the government of a 'material risk to UK financial stability', sparked by Kwasi Kwarteng's mini-budget. AFP
The Bank of England warned the government of a 'material risk to UK financial stability', sparked by Kwasi Kwarteng's mini-budget. AFP
The Bank of England warned the government of a 'material risk to UK financial stability', sparked by Kwasi Kwarteng's mini-budget. AFP
The Bank of England warned the government of a 'material risk to UK financial stability', sparked by Kwasi Kwarteng's mini-budget. AFP

World

UK

Inside the run that almost crashed Britain’s pensions system

Potential catastrophe compelled Bank of England to step in with £65bn emergency bailout

Gillian Duncan
Gillian Duncan

September 29, 2022

  • English
  • Arabic

The UK pensions system was brought to the brink of collapse during the economic commotion of the past week, it has been revealed.

This potential catastrophe was what compelled the Bank of England to step in with a £65 billion ($71.14bn) emergency bailout on Wednesday.

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'Are you ashamed?' Liz Truss runs media gauntlet

The central bank’s intervention, in which it bought up long-term gilts, came after it warned of a “material risk to UK financial stability” posed by plunging markets for UK debt.

Experts said the move was in response to a run dynamic, which saw Northern Rock collapse in 2008.

New chancellor Kwasi Kwarteng’s mini-budget, which included Britain's largest tax cuts in 50 years, sparked the latest financial chaos.

Prime Minister Liz Truss took to the airwaves on Thursday to defend the proposals, insisting it was the “right plan” for the country and economy.

Former Bank of England governor Sir Mark Carney warned the government on Thursday against undermining the country’s economic institutions.

He said it was “working at cross purposes with the bank” with its mini-budget.

“Unfortunately, having a partial budget in these circumstances — a tough global economy, tough financial market position, working at cross purposes with the bank — has led to quite dramatic moves in financial markets.”

His comments are the latest in a wave of international criticism and warnings about the government’s fiscal plans, including from the International Monetary Fund and ratings firm Moody’s.

How did it come to this?

It all began with the chancellor’s mini budget a week ago. Under the plan, the government said it would abolish the cap on bankers' bonuses and the top 45 per cent rate of tax for the biggest earners.

Thresholds for paying stamp duty were also increased, while a National Insurance increase introduced by Boris Johnson’s government will be reversed from November 6.

The market reaction was swift — and brutal.

The pound plummeted, eventually falling to its lowest-ever level against the dollar on Monday.

Speculation swirled that the Bank of England could impose an emergency interest rate rise in response.

It did not, in the end, choosing instead to issue a statement to say it would not hesitate to change interest rates to control inflation.

Yet, still the downwards economic spiral continued, with the FTSE falling below the 7,000 mark.

On Wednesday, the Bank of England was forced to intervene by buying up gilts — UK government debt in sterling ― after it “warned of a material risk to UK financial stability”.

The bank was forced to act after plunging markets for UK debt sent borrowing costs soaring and forced pension funds to dump their assets because they did not have enough short-term cash to honour some contracts.

Britain's Prime Minister Liz Truss during Prime Minister's Questions in the House of Commons in London, addressing Parliament for the first time since abandoning her disastrous tax-slashing economic policies. Here, 'The National' looks at her time in power so far. AFP
Britain's Prime Minister Liz Truss during Prime Minister's Questions in the House of Commons in London, addressing Parliament for the first time since abandoning her disastrous tax-slashing economic policies. Here, 'The National' looks at her time in power so far. AFP
Liz Truss speaks to Grant Shapps at Downing Street as he is appointed Home Secretary, after the resignation of Suella Braverman. Photo: Simon Dawson / No 10 Downing Street
Liz Truss speaks to Grant Shapps at Downing Street as he is appointed Home Secretary, after the resignation of Suella Braverman. Photo: Simon Dawson / No 10 Downing Street
A mural by artist Ciaran Gallagher in Belfast is updated to reflect Liz Truss's current political troubles. PA
A mural by artist Ciaran Gallagher in Belfast is updated to reflect Liz Truss's current political troubles. PA
Britain's new Chancellor of the Exchequer Jeremy Hunt announcing tax and spending measures at the House of Commons in London, with Liz Truss sitting on the bench behind him. AFP
Britain's new Chancellor of the Exchequer Jeremy Hunt announcing tax and spending measures at the House of Commons in London, with Liz Truss sitting on the bench behind him. AFP
Liz Truss gives a speech after sacking Kwasi Kwarteng as chancellor of the exchequer. Reuters
Liz Truss gives a speech after sacking Kwasi Kwarteng as chancellor of the exchequer. Reuters
A protest by climate change group Extinction Rebellion in central London. Ms Truss has said the group is part of an 'anti-growth coalition' with trade unions and the main opposition Labour Party. AFP
A protest by climate change group Extinction Rebellion in central London. Ms Truss has said the group is part of an 'anti-growth coalition' with trade unions and the main opposition Labour Party. AFP
Ms Truss has come under increasing pressure during her short time as prime minister. AFP
Ms Truss has come under increasing pressure during her short time as prime minister. AFP
An Extinction Rebellion protest outside Downing Street on the day Mr Kwarteng was removed from the government. AP
An Extinction Rebellion protest outside Downing Street on the day Mr Kwarteng was removed from the government. AP
Ms Truss with members of the England women's football team and the European Championship trophy in Teddington, south-west London. Getty
Ms Truss with members of the England women's football team and the European Championship trophy in Teddington, south-west London. Getty
Ms Truss arrives for a meeting of the European Political Community at Prague Castle in the Czech Republic. AP
Ms Truss arrives for a meeting of the European Political Community at Prague Castle in the Czech Republic. AP
Ms Truss and her husband Hugh O'Leary wave after her keynote speech at the Conservative Party conference in Birmingham. AP
Ms Truss and her husband Hugh O'Leary wave after her keynote speech at the Conservative Party conference in Birmingham. AP
Liz Truss gives a speech at the Conservative Party Conference. EPA
Liz Truss gives a speech at the Conservative Party Conference. EPA
Ms Truss meets with Mr Kwarteng, chancellor of the exchequer at the time. Photo: Andrew Parsons / CCHQ
Ms Truss meets with Mr Kwarteng, chancellor of the exchequer at the time. Photo: Andrew Parsons / CCHQ
Ms Truss and Mr Kwarteng visit a construction site for a medical innovation campus in Birmingham. AFP
Ms Truss and Mr Kwarteng visit a construction site for a medical innovation campus in Birmingham. AFP
Ms Truss meets US President Joe Biden for talks at the UN headquarters in New York. PA
Ms Truss meets US President Joe Biden for talks at the UN headquarters in New York. PA
Ms Truss delivers a speech at the 77th session of the General Assembly at the UN headquarters in New York. AP
Ms Truss delivers a speech at the 77th session of the General Assembly at the UN headquarters in New York. AP
The British prime minister holds a bilateral meeting with Turkish President Recep Tayyip Erdogan in New York. Reuters
The British prime minister holds a bilateral meeting with Turkish President Recep Tayyip Erdogan in New York. Reuters
Ms Truss meets French President Emmanuel Macron at the UN headquarters in New York. Reuters
Ms Truss meets French President Emmanuel Macron at the UN headquarters in New York. Reuters
Ms Truss speaks to the media during her visit to the Empire State building in New York. AP
Ms Truss speaks to the media during her visit to the Empire State building in New York. AP
Britain's new leader speaks during the state funeral of Queen Elizabeth at Westminster Abbey, London. PA
Britain's new leader speaks during the state funeral of Queen Elizabeth at Westminster Abbey, London. PA
Ms Truss and her husband Hugh O'Leary observe a minute's silence at Number 10 Downing Street following the death of the queen. Reuters
Ms Truss and her husband Hugh O'Leary observe a minute's silence at Number 10 Downing Street following the death of the queen. Reuters
Britain's Labour Party leader Sir Keir Starmer and Ms Truss leave after a service for the reception of Queen Elizabeth's coffin at Westminster Hall in the Palace of Westminster. AFP
Britain's Labour Party leader Sir Keir Starmer and Ms Truss leave after a service for the reception of Queen Elizabeth's coffin at Westminster Hall in the Palace of Westminster. AFP
Ms Truss joins the Speaker Lindsay Hoyle and selected MPs to take the oath and swear allegiance to King Charles III in the House of Commons chamber. PA
Ms Truss joins the Speaker Lindsay Hoyle and selected MPs to take the oath and swear allegiance to King Charles III in the House of Commons chamber. PA
King Charles during his first audience with Ms Truss at Buckingham Palace, London, following the death of Queen Elizabeth. Getty Images
King Charles during his first audience with Ms Truss at Buckingham Palace, London, following the death of Queen Elizabeth. Getty Images
Ms Truss gives a reading during a service of prayer and reflection, following the passing of Queen Elizabeth, at St Paul's Cathedral in London. Getty Images
Ms Truss gives a reading during a service of prayer and reflection, following the passing of Queen Elizabeth, at St Paul's Cathedral in London. Getty Images
The British prime minister makes a statement outside 10 Downing Street in London following the queen's death. Bloomberg
The British prime minister makes a statement outside 10 Downing Street in London following the queen's death. Bloomberg
Ms Truss speaking during her first weekly Prime Minister's Questions session at the House of Commons in London. AFP
Ms Truss speaking during her first weekly Prime Minister's Questions session at the House of Commons in London. AFP
Front pages of a selection of British national newspapers, each leading with a story about Ms Truss becoming Britain's new prime minister. AFP
Front pages of a selection of British national newspapers, each leading with a story about Ms Truss becoming Britain's new prime minister. AFP
People walk past an image in central London of Ms Truss on the side of a protest bus calling for a citizens' assembly. Reuters
People walk past an image in central London of Ms Truss on the side of a protest bus calling for a citizens' assembly. Reuters
Ms Truss holds her first Cabinet meeting at 10 Downing Street. Reuters
Ms Truss holds her first Cabinet meeting at 10 Downing Street. Reuters
Ms Truss speaks at Downing Street on the day she took over as prime minister from Boris Johnson. EPA
Ms Truss speaks at Downing Street on the day she took over as prime minister from Boris Johnson. EPA
Ms Truss poses with her husband Hugh O'Leary at Downing Street before entering as prime minister for the first time. EPA
Ms Truss poses with her husband Hugh O'Leary at Downing Street before entering as prime minister for the first time. EPA
Ms Truss is welcomed by staff in Downing Street as she enters the famous prime ministerial offices for the first time. Andrew Parsons / No 10 Downing Street
Ms Truss is welcomed by staff in Downing Street as she enters the famous prime ministerial offices for the first time. Andrew Parsons / No 10 Downing Street
New Health Secretary Therese Coffey and Number 10 staff shelter from a downpour as they wait for Ms Truss to arrive in Downing Street. PA
New Health Secretary Therese Coffey and Number 10 staff shelter from a downpour as they wait for Ms Truss to arrive in Downing Street. PA
Liz Truss makes a speech outside 10 Downing Street, London, after meeting Queen Elizabeth II and accepting her invitation to become prime minister and form a new government. PA
Liz Truss makes a speech outside 10 Downing Street, London, after meeting Queen Elizabeth II and accepting her invitation to become prime minister and form a new government. PA
Queen Elizabeth II greets the newly elected leader of the Conservative Party, Ms Truss, at Balmoral Castle in Scotland. The queen invited Ms Truss to become prime minister and form a new government. Getty Images
Queen Elizabeth II greets the newly elected leader of the Conservative Party, Ms Truss, at Balmoral Castle in Scotland. The queen invited Ms Truss to become prime minister and form a new government. Getty Images

Sources said the bank had begun to detect a “run dynamic”, with several pension funds facing mass defaults in funds in which they invest.

The Bank of England issued a statement this week that said it would not hesitate to raise rates to bring inflation, currently running at almost 10 per cent, back to its 2 per cent target.

The base rate now seems certain to treble between now and next year, from its current rate of 2.25 per cent, to about 6 per cent as the bank struggles to rein in inflation.

That could make mortgages unaffordable for many new — and existing — customers, as mortgage rates are even higher than the bank base rate.

Martin Lewis, a financial journalist and campaigner, says every £100,000 of mortgage equates to roughly £600 a year more for each 1 per cent interest rate rise.

“If UK rates rise to 6 per cent as some predict, mortgages would likely rise more than another 3 per cent again,” he said.

Defaqto, a financial comparison website, says almost 3,000 mortgage products have been withdrawn from the market this week. And more than 20 providers have withdrawn their entire fixed-rate mortgage rates.

The IMF on Tuesday said it was “closely monitoring” developments in the UK and urged Mr Kwarteng to “re-evaluate” his tax measures. It said, in an extraordinary statement, that the plans would increase inequality.

Meanwhile, Moody's said Britain's new fiscal policy regime was “credit negative”. It said a sustained confidence shock could permanently weaken the UK's debt affordability.

On Wednesday, in an attempt to allay fears, Mr Kwarteng met senior bankers, who said his November “medium-term fiscal plan” was too far away.

Ms Truss and her supporters have dismissed concerns about the government’s plans.

Speaking on local BBC radio on Thursday, after almost a week of silence, she said growth would not come about “overnight”.

“But what’s important is we are putting this country on a better trajectory for the long term,” she said.

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4.35pm: Tilal Al Khalediah
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Send “thenational” to the following numbers or call the hotline on: 0502955999
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Hepatitis is an inflammation of the liver, which can lead to fibrosis (scarring), cirrhosis or liver cancer.

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People infected with hepatitis C experience few or no symptoms, meaning they can live with the virus for years without being diagnosed. This delay in treatment can increase the risk of significant liver damage.

There are an estimated 170 million carriers of Hepatitis C around the world.

The virus causes approximately 399,000 fatalities each year worldwide, according to WHO.

 

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UAE currency: the story behind the money in your pockets
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Updated: September 29, 2022, 1:52 PM`
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