EVENING UPDATE The FTSE 100 closed down 0.86% and the FTSE 250 was down 1.73% after another day of uncertainty in Britain’s financial markets.
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New data showed that GDP shrank 0.3% in August, a bigger-than-expected figure which stoked fears of Britain entering recession.
The Pound slumped again after Bank of England governor Andrew Bailey suggested that the bailout of the gilts market will end on Friday.
In Washington, Andrew Bailey warned pension funds that they had ‘three days left’ before the bond buy-up ends.
Speaking at an event in Washington, Bailey said, ‘We have announced that we will be out by the end of this week. We think the re-balancing must be done.
‘And my message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.’The Bank has supported the bond market for two weeks in the wake of Kwasi Kwarteng’s ‘mini-budget’ amid fears that plummeting prices would create a ‘fire sale’.
MORNING UPDATE – London’s FTSE 100 was down 1.06% and the FTSE 250 was down 1.29% amid continued fears over Britain’s gilt market and the Bank of England’s repeated interventions.
The Bank indicated on Tuesday it would buy further government bonds, including index-linked gilts, in an effort to avoid a sell-off which could lead pension funds to collapse.
In a statement, Threadneedle Street said, “The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.
Markets slumped in the wake of the Bank of England’s move – its second intervention in two days.
Joshua Mahony, senior market analyst at online trading platform IG said, “The Bank of England have once again interjected in the gilts market, with the extension and expansion of last week’s ‘temporary’ intervention signalling the fact that the problems facing the pensions market is far from a simple fix.
“While the bank is expected to end their support on Friday, comments from the PLSA highlight a feeling that the BoE may need to push their policy through into November if they are to adequately prop up an industry that continues to struggle under the weight of a highly volatile gilts market.”
Financial stocks were among the biggest fallers in the wake of hte news, with Legal and General (GB:LGEN) down 4.51%.
British business news today
Pension funds call on Bank of England to extend bond purchases (FT)
IMF warns of global house price crash (Telegraph)
Chancellor promises ‘relentlessly upbeat fiscal plan’ (Times)
