The Bank of England stopped its program of buying government bonds. The Pound took another blow as the British economy appears in shambles.
The Pound just cannot take a break, it seems. Since Liz Truss became Prime Minister in early September, the British currency fell to its lowest in almost 40 years. And every week the British government or the Bank of England seems to take a decision that makes it even worse.
It all started with Liz Truss’ terrible plan to cut tax to the rich, 45 billion pounds just lifted from the economy that seemingly the poorest percent of the population would pay. Well actually, what I said it’s not true. It all started with Brexit, but if I had to list every bad decision the British government took in the last 6 years I would be here for days and this article would not come out in time.
So, let’s put the last important milestone in Truss’ decision. This was the first major move her cabinet had to take and she failed spectacularly; so much so that many believed her reputation would never recover. The backlash was so strong that only after a few days, her government decided to step back and rethink the tax cut.
Now, they’ve given themselves an additional month to rethink the national budget’s plan, which will be announced on October 31st. Despite the comeback, however, the damage was already done. The Bank of England had immediately started purchasing 65 billions in government bonds to keep the pound afloat.
Once the tax cut decision was reversed, the Bank of England pledged to continue buying in order to strengthen the currency.
The Bank of England decision that made the pound fall
Among the pleads for the Bank of England to keep buying, one came from the Pensions and Lifetime Savings Association. “A key concern of pension funds since the Bank of England’s intervention has been that the period of purchasing should not be ended too soon,” they said. “For example, many feel it should be extended to the next fiscal event on 31 October and possibly beyond.”
Unfortunately for them (and the Pound), the Bank of England announced that the buying program would end on Friday. This immediately sparked fears of volatility amongst investors, and the Pound hit a new low when markets opened. Yields on the 30 years bonds went up, reaching worrying levels of 5%.
This is another blow to Liz Truss, who is struggling to maintain credibility in her government. It is likely that no matter what decision will be announced on the 31st, it will not be enough to justify the cuts, and the people might start to ask difficult questions.
