12 October 2022 - Truss bows to pressure over benefits

Bank of England Governor Andrew Bailey spoke yesterday of the turmoil that the Government's new policies have brought to the gilts market and confirmed that additional support provided by the Central Bank must end this Friday. The fear that pension funds will begin a fire sale of UK government assets, driving long term interest rates higher, could complete the total breakdown of the market’s confidence in the Treasury. The Governor went on to say that any intervention in markets is simply to stabilize the situation, and market users cannot become reliant on official support. Therefore, any action taken by the Bank of England will be temporary and must end on Friday. There is a clear fracture between the fiscal actions of the Treasury and the monetary actions of the Bank of England. The Office for Budget Responsibility in a preliminary report that will be fleshed out on 31st October spoke of its expectation that it will take around sixty billion pounds worth of reduction in Government spending to balance the books. The Prime Minister appears to have again been forced into a U-turn by Conservative backbenchers. In April, then Prime Minister Boris Johnson pledged to increase certain benefits in line with inflation. Truss was asked about this when she took up the role, and she refused to commit to Johnson’s promise.