THE BRITS

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REUTERS

"Euro zone likely entering recession as price rises hit demand"


By Jonathan Cable

September 23, 2022

LONDON, Sept 23 (Reuters) - A downturn in business activity across the euro zone deepened in September, according to a survey which showed the economy was likely entering a recession as consumers rein in spending amid a cost of living crisis.

Manufacturers were particularly hard hit by high energy costs after Russia's invasion of Ukraine sent gas prices rocketing, while the bloc's dominant services industry suffered as consumers stayed at home to save money.

S&P Global's flash Composite Purchasing Managers' Index (PMI), seen as a good gauge of overall economic health, fell to 48.2 in September from 48.9 in August, as expected by a Reuters poll.

"The third decline in a row for the euro zone PMI indicates business activity has been contracting throughout the quarter."

"This confirms our view a recession could have already started," said Bert Colijn at ING.


A reuters poll earlier this month gave a 60% chance of a recession in the euro zone within a year.

The downturn in German business activity deepened as higher energy costs hit Europe's largest economy and companies saw a drop in new business, data showed.

However, in France activity was higher than expected although its PMI showed the euro zone's second biggest economy was still struggling as a modest rebound in services offset a slump in the manufacturing industry.

"It's possible German GDP fell in Q3 whereas France's economy eked out a small expansion, consistent with our view Germany will suffer more than most over the coming quarters as high energy costs weigh on energy-intensive industry as well as household budgets," said Jack Allen-Reynolds at Capital Economics.

The euro, German government bond yields and stocks all fell after the PMI data.

In Britain, outside the European Union, the economy worsened as firms battled soaring costs and faltering demand, hammering home the rising risk of recession there too.

In a bid to spur growth, new UK finance minister Kwasi Kwarteng on Friday was detailing close to 200 billion pounds ($223.2 billion) of tax cuts, energy subsidies and planning reforms.


PRICE PRESSURES

Overall demand in the euro zone fell to its lowest since November 2020, when the continent was suffering a second wave of COVID-19 infections.

The new business PMI fell to 46.0 from 46.9.

The euro zone services PMI fell to 48.9 from 49.8, its second month sub-50 and the lowest reading since February 2021.


The Reuters poll had predicted a more modest fall to 49.0.

With prices on the rise again and demand falling, optimism about the coming 12 months waned.

The business expectations index fell to 53.8 from 56.6, its lowest since May 2020.

Manufacturers also had a worse month than predicted.

Their PMI sank to 48.5 from 49.6, compared to the 48.7 forecast in the Reuters poll and the lowest since June 2020.

An index measuring output, which feeds into the composite PMI, nudged down to 46.2 from 46.5.

Likely of concern to the European central bank, which raised its key interest rates by 75 basis points earlier in September to try and tame inflation running in August at over four times its target, the survey showed prices had risen faster this month.

Both the input and output manufacturing prices indexes reversed a downward trend and rose.

The input price index reached a three-month high of 76.4 from 71.7.

Reporting by Jonathan Cable; Editing by Susan Fenton

https://www.reuters.com/markets/europe/ ... 022-09-23/
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REUTERS

"Bank of England 'will not hesitate' to act as it monitors market turmoil"


By Amanda Cooper, David Milliken and Andy Bruce

September 26, 2022

Summary

* Pound briefly touched a record low against dollar

* Five-year gilts match Friday's record daily slump

* Yields on 2-year and 5-year debt up 100 bps in 2 days

* Finance minister to detail fiscal plans on Nov. 23

* BoE monitoring developments 'very closely'


LONDON, Sept 26 (Reuters) - The Bank of England said on Monday it would not hesitate to change interest rates and was monitoring markets "very closely", after the pound plunged to a record low and British bond prices collapsed in response to the new government's financial plans.

Finance minister Kwasi Kwarteng sent sterling and government bonds into freefall on Friday with a so-called mini-budget that was designed to grow the economy by funding tax cuts with huge increases in government borrowing.


Such was the market turmoil on Monday there was growing speculation in financial markets that the BoE would make an emergency interest rate rise after it hiked rates only last week to 2.25% from 1.75%.

Instead, with the pound fragile and bond prices still tumbling, Kwarteng issued a statement just before the British stock market closed to say he would set out medium-term debt-cutting plans on Nov. 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.

The central bank welcomed "the commitment to sustainable economic growth" from Kwarteng and the independent scrutiny that the OBR growth and borrowing forecasts would bring.

"The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets," Bank of England Governor Andrew Bailey said.

"The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit."

U.S. Federal Reserve official Raphael Bostic said the market moves could lead to greater economic stress in Europe and the United States, while analysts and investors said the government had done the bare minimum to reassure markets.

"There seems no reason to believe that markets will give the government the benefit of the doubt ahead of a new fiscal plan by Kwasi Kwarteng," said Chris Scicluna, head of economic research at Daiwa Capital Markets.

"The market could force their hand and there still could be an emergency rate hike before the next BoE meeting," he said, referring to the next scheduled policy announcement on Nov. 3.

INTENSE PRESSURE

The Treasury and central bank statements came towards the end of a day of turmoil for Britain's currency and debt.

While the pound plunged by as much as 5% against the dollar to touch $1.0327, its weakest on record, in Asian trade, it had pared most of the day's losses in European trading on hopes of an emergency rate hike.


The statement at the close of trading on Monday pushed the pound back to as low as $1.0645 from $1.0820.

Sterling was trading at $1.0680 at 1644 GMT, down 1.6% on the day.

In the market for British government bonds, or gilts, the pressure had been even more intense, with five-year bond prices recording their joint-biggest daily fall since at least 1991, matching Friday's historic slump.

The five-year gilt's yield - the cost for the British government of new borrowing over five years - reached its highest since September 2008 at 4.603%, and has risen a full percentage point in the last two trading days as Prime Minister Liz Truss's government lost credibility with investors.


"The reaction to the proposed plan is a real concern and a fear that the new actions will add uncertainty to the economy," Atlanta Fed President Bostic told the Washington Post.

"The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the U.S. economy is going to perform."

With markets remaining hugely volatile, British lenders Halifax, Virgin Money and Skipton Building Society withdrew mortgage products from the market.

Gilt yields showed little reaction to the BoE and government statements, but very short-term interest rate swaps slashed the odds of an emergency rate rise in the coming week.

Mohamed El-Erian, chief economic adviser at Allianz, had earlier said the central bank would have no choice but to raise interest rates if Truss and Kwarteng did not back down.

"And not by a little, by 100 basis points, by one full percentage point to try and stabilise the situation," he told BBC Radio.

Truss, Britain's former foreign secretary, was elected as prime minister earlier this month by a vote of the Conservative Party's 170,000 members - not the broader electorate - after an internal party rebellion that drove Boris Johnson out of power.

She largely beat her rivals to the top job by vowing to reignite economic growth through tax cuts and deregulation to bring an end to the largely stagnant real wage growth that has marked her party's 12 years in government.

Her pledge to end so-called "Treasury orthodoxy" and go for growth marked a step change in British financial policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s.

"Markets go up and down," one veteran Conservative Party source said on Monday, declining to be named.

"We did something structural, short term, that will have seismic and positive long term benefits."

Further highlighting the extent to which investors have punished UK assets, the difference in 10-year borrowing costs for the British and German governments exploded to its widest since 1992, when Britain crashed out of the European Exchange Rate Mechanism.

British 10-year government bond prices are now on track for their biggest slump in any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and BoE data.

Writing by Kate Holton and Amanda Cooper; additional reporting by Muvija M, Elizabeth Piper, Kylie MacLellan, Andy Bruce and Harry Robertson; Editing by Hugh Lawson, Mark Potter, Toby Chopra and Alexander Smith

https://www.reuters.com/markets/europe/ ... 022-09-26/
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REUTERS

"IMF says UK fiscal measures will 'likely increase inequality,' urges rethink"


By Andrea Shalal

September 27, 2022

WASHINGTON, Sept 27 (Reuters) - The International Monetary Fund on Tuesday took aim at new British financial plans that have roiled markets, warning that "large and untargeted fiscal packages" would likely increase inequality in Britain and could undermine monetary policy.

In its first comments on plans by Britain's new finance minister Kwasi Kwarteng, which have sent sterling and bonds into free fall, the IMF urged UK authorities to consider providing more targeted support to families and business instead of sizable tax cuts and sharply higher government spending.

“We are closely monitoring recent economic developments in the UK and are engaged with the authorities," an IMF spokesperson said, in response to a query from Reuters after the British pound hit an all-time low amid spiking market concerns.

"Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy," the spokesperson said in the IMF's first public reaction.

Kwarteng, who on Friday unveiled a budget aimed at growing the economy by cutting taxes and sharply increasing government borrowing, responded to market mayhem by promising to roll out medium-term debt-cutting plans on Nov. 23.

The global lender understands that Britain's "sizable fiscal package" was intended to help residents deal with higher energy prices and to boost growth via tax cuts and supply measures, but such measures could put fiscal policy at cross purposes with monetary policy, the spokesperson said.

"The nature of the UK measures will likely increase inequality," it added.

Kwarteng's Nov. 23 budget would provide an "early opportunity for the UK government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high-income earners,” the spokesperson added.

Britain was forced to apply for an IMF loan of nearly $4 billion during the 1976 financial crisis, with IMF negotiators insisting on deep cuts in public expenditure at the time.

IMF officials have warned repeatedly in recent months of the need to carefully calibrate fiscal and monetary policy as central bankers raise interest rates across the globe to get inflation under control.

Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Jonathan Oatis

https://www.reuters.com/world/uk/imf-sa ... 022-09-27/
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CNBC

"Record number of UK mortgage deals pulled in one day as market mayhem takes hold"


Sophie Kiderlin @SKIDERLIN

PUBLISHED WED, SEP 28 2022

KEY POINTS

* Hundreds of residential mortgage deal offers in the U.K. have been pulled, with HSBC, Santander and NatWest becoming the latest major lenders to pause or change their offerings.

* Concerns about mortgage rates becoming unaffordable have spiked as fears of the base rate rising to 6% next year spread.

* British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced a “mini-budget” on Friday.

* Overall, 935 mortgage products were pulled from the market on Tuesday, according to data from money comparison site Moneyfacts.


LONDON – Hundreds of residential mortgage deal offers in the U.K. have been pulled after market chaos sparked concerns about base rates rising as high as 6% next year.

Overall, 935 mortgage products were pulled from the market on Tuesday, according to data from money comparison site Moneyfacts.

The company said this was the largest ever daily drop on record, with the previous high being 462 when the first U.K. Covid lockdown was announced in 2020.

HSBC and Santander are the latest major U.K. lenders to pause their mortgage product offerings, while NatWest repriced their products, increasing rates.

Santander said they halted some products for new customers and increased rates for both existing and new borrowers but would review their decisions “in light of market conditions.”

NatWest and HSBC did not immediately respond to CNBC’s request for comment.

Earlier in the week, Virgin Money, Halifax and Skipton Building Society temporarily pulled some of their mortgage deals citing market developments.

Concerns about mortgage rates becoming unaffordable have spiked among borrowers and lenders.

There have also been reports of house sales falling through as lenders backed out of previously agreed mortgage deals due to market uncertainty.

The U.K. bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng set out his “mini-budget” on Friday.

Following his announcement, which includes major tax cuts and a shift to “trickle-down economics,” the British pound fell to an all-time low against the dollar on Monday morning.

Meanwhile, the yield on the U.K. 10-year gilt soared to 14-year highs earlier in the week.


These major market moves sparked inflation fears among investors and led them to believe the Bank of England would implement further interest rate hikes.

The central bank said on Wednesday that it would intervene in the bond market and postpone selling gilts, while temporarily buying bonds.

Markets quickly began to price in a base rate as high as 6% for next year – which dramatically pushes up how expensive mortgages are for borrowers as the base rate is the benchmark for U.K. mortgage and loan products.

‘Borrowers would be wise to keep calm’

A research note from Pantheon Macroeconomics suggested that for households looking to refinance a two-year fixed rate mortgage, payments could jump up by as much as £627 ($670) per month.

Concerns have also been raised about borrowers having fewer options when trying to find a mortgage deal due to the market chaos, which could drive prices up even further.

Despite this, Moneyfacts finance expert Rachel Springall said borrowers shouldn’t panic.

“Borrowers would be wise to keep calm over the current volatility in the mortgage market and seek the advice from an independent broker."

"Various lenders have been very vocal that their decision to withdraw products is a temporary measure, amid the uncertainty over interest rates,” Springall said.

Speaking to CNBC’s “Street Signs Europe” on Tuesday, Imogen Bachra, head of U.K. rates strategy at NatWest, echoed a similar sentiment, explaining that she believed mortgage products being pulled is a temporary issue related to short-term market volatility.

https://www.cnbc.com/2022/09/28/record- ... hold-.html
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REUTERS

"Bank of England to buy 65 billion pounds of UK bonds to stem rout"


By David Milliken

September 28, 2022

Summary

* Bank of England steps in to buy long-dated bonds

* 30-year yields tumble by 100 bps after BoE support

* BoE to buy up to 5 bln pounds of gilts a day until Oct. 14

* Gilt sales due to start next week postponed

* BoE still aims to reduce QE holdings by 80 bln stg


LONDON, Sept 28 (Reuters) - The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.

Citing potential risks to the stability of the financial system, the BoE also delayed on Wednesday the start of a programme to sell down its 838 billion pounds ($891 billion) of government bond holdings, which had been due to begin next week.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said.

"This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."

The central bank said it was still committed to an 80 billion-pound cut over the next 12 months in its holdings of bonds bought after the global financial crisis of 2007-08 and during the COVID-19 pandemic.

British 30-year bond yields had hit their highest since 2002 earlier on Wednesday and traders said it was becoming increasingly hard to buy and sell bonds as no one wanted the risk of holding such a volatile asset.

Pension schemes which operate liability-driven investment (LDI) funds to meet regulatory requirements had been selling long-dated gilts to meet emergency collateral calls or reduce exposure, pensions advisers said.


"There are schemes running out of cash at the moment," one pensions consultant said before the BoE intervention.

"This was a response to a fairly specific issue with the LDIs and the relationship they have with pension funds," a source familiar with the BoE's decision said.

Left unchecked, collapsing gilt prices could have caused a vicious cycle of fire sales of assets, pushing prices yet lower and creating more forced sellers.

After the BoE announcement, long-dated bond prices surged with 30-year yields plunging more than a full-percentage point, their biggest one-day drop in Refinitiv records dating back to 1992.


The central bank put no limit on the size of its intervention but said it initially planned to hold daily auctions to buy up to 5 billion pounds of gilts with a maturity of at least 20 years, between Wednesday and Oct. 14.

"The purpose of these purchases will be to restore orderly market conditions," it said.

The BoE bought 1.025 billion pounds of gilts out of 2.587 billion pounds offered in its first buy-back on Wednesday, rejecting offers it thought were priced too high.

From the BoE's point of view, the low number of offers will be viewed positively, suggesting its commitment to buy long-dated gilts is acting as a back-stop and easing a liquidity squeeze, without it having to make big purchases itself.

TEMPORARY INTERVENTION?

The BoE last intervened in the gilt market to stem market turmoil in March 2020, when the pandemic roiled markets, expanding its then-dormant quantitative easing programme by hundreds of billions of pounds.

In contrast to then, the BoE said on Wednesday that the intervention would be strictly temporary and would be "unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided".

Markets have baulked at the unfunded tax cuts that formed part of new finance minister Kwasi Kwarteng's first fiscal statement on Friday.

"(The BoE) have put something of a floor under the market in the short term."

"However, the pro-cyclical fiscal policy remains and as such the respite may not be long lasting," said Charles Diebel, head of fixed-income strategy at Mediolanum Asset Management.

The BoE's intervention reduced long-dated bond yields back to their level at the end of Friday - after the initial negative reaction to Kwarteng's statement - but shorter-dated yields were still higher.

Speaking on Tuesday, BoE chief economist Huw Pill said the BoE would only delay its planned sale of bonds if it saw market dysfunction, and it would not stop an orderly market repricing of the debt.

The BoE couched its intervention on Wednesday in terms of tackling a specific financial stability problem, rather than being a broader attempt to rein in yields.

Economists and investors said the central bank would be keen to avoid the perception that it was stepping in to finance the government, or that the market turmoil jeopardised its ability to take steps to return inflation to its 2% target.

"The likelihood of the market misunderstanding this policy change though is high and risks a potential hazardous misstep," said Bethany Payne, global bond portfolio manager at Janus Henderson Investors.

Reporting by David Milliken, additional reporting by Carolyn Cohn, Sachin Ravikumar and Dhara Ranasinghe; Editing by Catherine Evans, William Schomberg, Toby Chopra and Jonathan Oatis

https://www.reuters.com/markets/europe/ ... 022-09-28/
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REUTERS

"UK housing market may face perfect storm as mortgage rates rise, house prices drop"


By Andy Bruce, Sinead Cruise and Carolyn Cohn

September 28, 2022

Summary

* New mortgage rates now quoted at 5%-6%

* Millions of homeowners could be overstretched

* HSBC sees 7.5% fall in house prices into next year


LONDON, Sept 28 (Reuters) - A surge in borrowing costs and a likely slowdown in economic growth threaten to trigger a selloff in Britain's housing market with consequences for personal wealth and the broader economy that could resonate for decades.

The tumultuous unveiling of the country's new economic strategy has left lenders scrambling to keep up with wild swings in the sterling funding markets that determine what mortgage rates they offer to homeowners, whose sense of wealth is intimately tied to the value of their property.

The most recent government data showed just under two-thirds of 24.7 million dwellings across Britain were owner-occupied, with 8.8 million homes owned outright and 6.8 million owned with a mortgage or a loan.

Some institutions temporarily stopped selling mortgages to new customers, while many others ramped up repayment rates for new loans to levels seen overstretching millions of existing homeowners and making new mortgages unaffordable for many others.

Mortgage deals for new customers now feature rates at around 5%-6% - a steep increase from the norm of around 2% for the last five years which is prompting rising concern of a collapse in the property market further down the line.

"The mortgage crisis is going to be bigger than energy now," said Richard Murphy, professor of accounting practice at Sheffield University, warning of a drop in house prices that could leave many with debt greater than the value of their home.

"This will end in tears."

Historically low interest rates since the 2007/08 global financial crisis and a low supply of housing stock have fuelled the doubling of the average price of a British home to 292,000 pounds ($316,000) from just 154,000 in 2009.

That fed a sense of affluence which in turn buoyed consumer spending and underpinned wider growth in the economy.

But that could unravel if the unintended consequence of finance minister Kwasi Kwarteng's bid to turbo-charge economic growth with tax cuts ends up forcing the cost of borrowing higher.

EXPOSED

A Fitch Ratings study in July identified Britain as among the most exposed globally to a rise in borrowing costs because of the relatively high debt-to-income levels accepted by home-owners and its high proportion of loans on floating rates.

Even among those who did fix their repayment rate, some 1.3 million borrowers are due to reach the end of their fixed-rate term this year, according to an analysis by UK Finance and Accenture published before the most recent rate rises.


Where repayment rates finally settle depends on shifts in debt markets plus the overall cost of borrowing set by the Bank of England - with money markets now expecting that to hit almost 5.75% by the middle of next year from 2.25% now.

"The view of investors that I've been speaking to over the last day or so is that effectively the UK banks are saying there's no front book at these rates," John Cronin, head of financials at stockbroker Goodbody said, referring to the prices of services available to new customers.

"They're just too painful from an affordability standpoint."

This comes on top of a cost of living crisis driven by rising food and energy prices which is already biting many hard.

Debt charity StepChange said one in seven of its new clients are mortgage-holders facing rising debt, while the Money Advice Trust said 5% of UK adults already reported they were behind in their mortgage payments last month - up from 2% in March.

"All of this will cause a massive downturn and mega- disruption of the mortgage and housing markets and the financial equilibrium in the typical Briton's life," Roger Gewolb, founder of the Campaign for Fair Finance, told Reuters.

CALL FOR CALM

Beyond the immediate squeeze this will have on consumers' ability to spend, rising borrowing costs also have the potential to send the years-long house market rally into reverse: HSBC analysts predict house price falls of 7.5% into next year.

Goodbody's Cronin noted that in ordinary times, higher interest rates meant better profits from lending and so were usually positive for bank sector profits - until such a point as there is a risk the original loan cannot be repaid.

"At a certain level that will overshadow the revenue upside."

"I think we're now at that stage where people are asking that question," Cronin said.

Some top mortgage lenders are calling for calm, stressing they are still signing mortgage deals and that the pullback in lending among smaller rivals is in no way indicative of a broader, exodus of lenders from the mortgage market.

Chris Huddleston, chief executive of international brokerage company FXD Capital, said he expected the mortgage market to remain in limbo in coming weeks as investors watch currency markets and how the Bank of England reacts.

"If the pound stabilises, and the BoE avoids an emergency hike - I don't believe this will happen - then lenders can resume lending with some degree of confidence in their cost-of-funds modelling," he said.

Writing by Mark John; Editing by Hugh Lawson

https://www.reuters.com/world/uk/uk-hou ... 022-09-28/
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NBC NEWS

"In dramatic reversal, U.K. scraps plan to cut taxes for rich that sent pound crashing"


Patrick Smith

3 SEPTEMBER 2022

LONDON — British Prime Minister Liz Truss on Monday ditched her signature plan to cut taxes for the country's top earners after it triggered market turmoil and a huge domestic outcry.

Truss, who is less than a month into the job, proposed removing the top tier of income tax — meaning a saving for people who earn more than 150,000 pounds ($168,000) a year — as part of a set of unfunded economic reforms that caused the pound to fall to historic lows and damaged Britain's economic standing globally.

The dramatic reversal comes just hours after Truss defiantly defended the tax cut and her broader radical economic agenda to ruling Conservative Party activists, saying it was necessary to solve the country’s long-term economic woes.

Faced with a growing political rebellion after days of economic chaos, the government said early Monday it was abandoning the plan.

"We get it and we have listened," Truss and her embattled finance minister Kwasi Kwarteng said on Twitter.


The pound rose after the announcement to around $1.12 — about the value it held before the Sept. 23 budget announcements.

The abrupt about-face comes as the Conservatives gather in Birmingham for an annual conference, normally a morale-boosting event for activists to hear about the party's priorities for the year ahead.

Instead, the party finds itself in embarrassing retreat with a resurgent opposition center-left Labour Party about 20% ahead in opinion polls.

With the country already facing a grim winter of soaring energy bills and food prices, critics accused Truss of having misplaced priorities and intensifying the pain for many.

Labour's finance spokesperson Rachel Reeves said: "The Tories have destroyed their economic credibility and damaged trust in the British economy."


Even as Truss defended the policy over the weekend, a growing number of senior lawmakers in her party signaled they would vote against it in the House of Commons.

The plan to cut taxes for the wealthy was part of a broader "mini-budget" announced soon after the new administration took office.

Aimed at fueling economic growth, it proposed broader tax and regulation cuts in a £45 billion ($50 billion) package that was unfunded, leaving Britons wondering which already-strained public services might be cut to save money.

The move earned a rare rebuke from the International Monetary Fund, which urged the government to “re-evaluate” a plan that may fuel already-soaring inflation and increase economic inequality.

The plan to borrow more to fund unpopular tax cuts was roundly rejected as unsound by economists, with the value of the pound plummeting and the cost for the U.K. to borrow on international markets soaring.

The British central bank, the Bank of England which is independent of government, intervened with a 65 billion pound ($73 billion) package to stave off market panic.

Despite the reversal, homeowners and prospective buyers look set for a rough ride as interest rates are still likely to rise, pushing mortgage rates higher for millions.

Banks have already removed dozens of mortgage deals and pushed their monthly fees higher.


Kwarteng said the government was sticking to its other tax policies, including a cut next year in the basic rate of income tax.

Last week Truss suffered a memorably bruising round of interviews with local radio stations, in which she falteringly attempted to defend the measures.

A BBC Nottingham presenter described the top rate income tax cut as a "reverse Robin Hood" policy and asked Truss: “Why don’t you just hold your hands up and say, ‘This is a mess, we got it wrong and we’re going to do something different?'"

Days later the government is, though it may be too late to avoid long-term political and economic consequences.

This article was originally published on NBCNews.com

https://www.msn.com/en-us/news/world/in ... 686ec4f02f
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REUTERS

"Britain could face three-hour power cuts this winter, National Grid warns"


By Susanna Twidale

October 6, 2022

Summary

* Some customers could be without power for pre-defined periods

* Utility says outages could be in three-hour blocks

* Any shortfall in gas supplies in Europe could have impact on UK

* Countries across Europe drawing up winter contingency plans

* British govt says it is confident of securing winter power


LONDON, Oct 6 (Reuters) - Britain could face three-hour planned power cuts to homes and businesses this winter if it cannot import electricity from Europe and struggles to attract enough gas imports to fuel gas-fired power plants, the National Grid warned on Thursday.

The prospect of power cuts comes as Prime Minister Liz Truss on Thursday called on Europe to keep energy exports flowing during the winter, and is likely to heap further pressure on the government after she previously ruled out energy rationing in Britain.

Countries across Europe are drawing up winter contingency plans against the disruption of flows of gas from Russia because of the war in Ukraine, which could lead to rationing and a curb in exports of energy to other countries.

A shortage of gas in Europe, as well as maintenance issues with several French nuclear power plants, have raised the risk Britain could be unable to secure the gas it needs or the imports of electricity it typically receives from countries such as France, Belgium and Netherlands.

"In the unlikely event we were in this situation, it would mean that some customers could be without power for pre-defined periods during a day – generally this is assumed to be for three-hour blocks," the National Grid Electricity System Operator (ESO) said in its Winter Outlook.

The British government said in response it was confident of securing power supplies for the winter.

"The UK has a secure and diverse energy system."

"We are confident in our plans to protect households and businesses in the full range of scenarios this winter," a government spokesperson said.

"To strengthen this position further, we have put plans in place to secure supply," the spokesperson added, pointing to Britain's North Sea gas reserves, imports from partners like Norway and clean energy sources.

A separate risk assessment by the British government published on Thursday showed its security of gas supply met the standards required in law.

Its analysis said the infrastructure could meet gas demand across scenarios including "a combination of exceptional demand caused by severe weather conditions and the failure of the largest single piece of infrastructure on the gas network".

'KNOCK-ON IMPACTS'

Russia has slashed its gas supplies to Europe this year and while Russia only meets about 4% of Britain's gas needs, a disruption in supply to Europe has contributed to driving up British prices and makes it harder for Britain to secure gas from others.

"The potential for a shortfall in gas supplies within continental Europe could have a range of knock-on impacts in Great Britain, creating risks around the ability of GB to import from continental Europe," National Grid's Gas Transmission (NGGT) arm said in a separate Gas Winter Outlook.

The gas outlook said Britain’s ability to secure supply would depend upon its gas prices being high enough to continue to attract exports from Europe and liquefied natural gas (LNG) from countries such as Qatar and the United States.

“In the unlikely event there is insufficient gas supply available in GB to meet demand ... We have the tools required to ensure the safety and integrity of the gas system in the event of a Gas Supply Emergency,” NGGT said.

As a first step, these tools include sending notices to the market to try to attract more gas to the system or to get large gas users to reduce demand.

If a lack of gas meant Britain was forced to limit supplies, households would be prioritised and curbs would first fall on large industrial users and power plants.

Both National Grid ESO and NGGT said they expect to be able to meet electricity and gas demand this winter but that the unprecedented and uncertain situation in Europe had led them to look at a range of scenarios.

Reporting by Susanna Twidale; additional reporting by Sachin Ravikumar; Editing by Bernadette Baum and Raissa Kasolowsky

https://www.reuters.com/business/energy ... 022-10-06/
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Re: THE BRITS

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REUTERS

"Kwarteng tries to calm investors but UK bonds sell off again"


By Andy Bruce, William Schomberg and David Milliken

October 10, 2022

Summary

* Finance minister brings forward budget plan to Oct. 31

* Experienced Treasury official named to run ministry

* Bank of England ramps up support for bond market

* But longer-dated gilt yields rise sharply again


LONDON, Oct 10 (Reuters) - British finance minister Kwasi Kwarteng, who last month sparked a bond market rout with unfunded tax cuts, sought to reassure investors on Monday by bringing forward a budget announcement and naming a Treasury insider to run the department.

But a selloff of British government debt sped up again -- even after the Bank of England announced more support for the fragile market -- on worries about the scale of borrowing planned by Kwarteng and Prime Minister Liz Truss.

Under pressure to rebuild investor confidence, Kwarteng said he would reveal longer-term tax and spending plans and independent economic forecasts on Oct. 31, more than three weeks earlier than previously scheduled.

He also announced that experienced Treasury official James Bowler would be the finance ministry's new top civil servant, after unsettling investors by abruptly ousting his predecessor, Tom Scholar.

Newspapers reported last week that Truss had wanted to give the job to an outsider, having accused the Treasury of following low-growth economic policy "orthodoxy".

Mel Stride, a lawmaker who chairs the Treasury Committee in the lower house of parliament and had criticised Scholar's departure, said the appointment would help reassure investors.

But investors remained anxious, pushing up the yields on longer-term British government debt closer towards their peaks of late September when pension funds came under strain, despite the Bank of England enlarging its emergency market support which is due to expire on Friday.

"The market reaction so far has been far from encouraging and are a sign of how precarious the situation may still be," said Daniela Russell, head of UK rates strategy at HSBC.

The Financial Conduct Authority, a regulator, told trading platforms they must tell it immediately about any big deterioration in market conditions, while the European Union's securities watchdog asked Britain about the extreme moves.

The earlier date of Kwarteng's budget announcement will allow the BoE to factor the government's tax and spending plans into its thinking before it announces its next interest rate decision on Nov. 3.

Many investors think the BoE could raise rates by a whole percentage point to counter the inflationary impact of Kwarteng's tax cuts.

It is also due to start its quantitative tightening (QT) sales of British government bonds on Oct. 31 after postponing it because of its emergency bond purchase move.

"You have lots of risk events coming," Pooja Kumra, senior European rates strategist at TD Securities, said.

"The end of temporary purchases, then the fiscal outlook on Oct. 31 and the start of QT, and the BoE meeting itself on Nov. 3."

HSBC's Russell said the BoE might have to give longer-term support to the market and restructure its bond sale plans to focus on shorter-term debt, with Britain's debt office possibly also skewing its bond sales away from longer maturities.

NEW BUDGET, SAME GROWTH PROBLEMS?

Kwarteng is preparing to head to Washington this week with International Monetary Fund criticisms of Britain's new policy direction ringing in his ears.

He said the new date for his medium-term fiscal statement would give the independent Office For Budget Responsibility (OBR) enough time to carry out a full forecast.

Kwarteng has previously said the OBR would not have had enough time to produce satisfactory projections for his Sept. 23 announcement, although the OBR has contradicted this.

Kwarteng and Truss are hoping that the OBR will back their claims that tax cuts and reforms to areas such as planning rules and immigration will boost Britain's economic growth prospects.

But last month the IMF said the government's push for economic growth and the BoE's attempts to control inflation were working against each other.

The new date for the fiscal plan sets the clock ticking for Kwarteng and Truss to settle divisions among ministers over their programme.

Having bowed to pressure to drop the most divisive policy - eliminating the 45% top rate of income tax for the highest earners - they face opposition in the cabinet to the idea of cutting welfare benefits in inflation-adjusted terms.

Last week two senior ministers expressed their dissatisfaction with Truss's income tax U-turn.

Additional reporting by Huw Jones and Harry Robertson; Editing by Catherine Evans and Rosalba O'Brien

https://www.reuters.com/world/uk/uks-kw ... 022-10-10/
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Re: THE BRITS

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REUTERS

"British pension funds step up fire sales as need for cash soars"


By Tommy Wilkes and Carolyn Cohn

October 11, 2022

LONDON, Oct 11 (Reuters) - UK pension schemes are racing to raise hundreds of billions of pounds to shore up derivatives positions before the Bank of England calls time on support aimed at keeping them afloat.

The Bank of England plans to stop buying bonds on Oct. 14, leaving pension schemes scrambling to meet a collective cash call estimated to be at least 320 billion pounds ($355 billion) without a buyer of last resort.

The central bank on Tuesday made its fifth attempt in just over two weeks to try and restore order in markets, after a surge in yields on Sept. 28 threatened to overwhelm pension schemes that had loaded up on leveraged derivatives.

Pension funds have spent the past two weeks trying to raise cash by selling off UK government bonds, or gilts, index-linked and corporate bonds but the fundraising task is intensifying, sources say.

Compounding the pain, providers of so-called liability-driven investment strategies (LDI) are demanding more cash to support new and older hedging positions.

The cash buffers now required are about three times larger than previously requested, according to four consultants advising pension schemes, as market players seek bigger cushions against greater swings in bond prices.

"This week with the gilt market not fully calmed, lots (of schemes) are now looking at this and saying we actually need to do a bit more and so there is renewed action to get even more collateral across," said Steve Hodder, a partner at pension consultants Lane Clark & Peacock.

While estimates of how much pension funds need to sell vary they are in the hundreds of billions of pounds, and it is not known how much funds have already raised in cash.

Some schemes will also be cutting their overall LDI exposure if they cannot meet the collateral demands, consultants say.

The latest BoE intervention on Tuesday was targeted at buying index-linked bonds, a far smaller market than gilts, dominated by pension funds and which suffered another significant selloff this week.

The Pensions and Lifetime Savings Association on Tuesday called for the BoE to consider continuing its emergency bond-buying programme to Oct. 31 "and possibly beyond".

BoE Governor Andrew Bailey, speaking in Washington later in the day, said: "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."

SCRAMBLE FOR CASH

LDI helps schemes match their liabilities - what they owe members - with assets.

Pension funds were previously putting up cash to withstand a move in government bond yields of 100 to 150 basis points -- normally a huge safety net, but which has been wiped out by some of the most volatile days on record.

Those collateral buffer demands increased to 300 basis points last week, consultants and pension industry experts said.

Some schemes have even been asked for 500 basis points this week amid more jumps in bond yields, although that amount remains rare.

The scramble for cash in the 1.6 trillion pound LDI industry, which soared in popularity among Britain's defined benefit schemes during a decade of low interest rates, is forcing pension funds to dump government and corporate bonds and even to exit from less liquid assets such as property and private equity.

Investment manager Columbia Threadneedle said on Tuesday it has suspended dealing in the 453 million-pound CT UK Property Authorised Investment Fund and its feeder fund to restore liquidity.

In another indication of market stress, Barclays said on Tuesday it would make extra liquidity available to its LDI counterparties as part of the BoE's Oct. 10 launch of an expanded repo facility.

The facility allows schemes to park more assets including low-rated corporate bonds in return for cash.

HOW MUCH MORE?

Nikesh Patel, head of client solutions at Kempen Capital Management, calculates that pension schemes collectively need to post 160 billion pounds of cash as collateral for every potential 100 basis point move in yields.

He estimates that after further volatility in yields in the past two days and in light of the industry's higher collateral requirements, the total cash funds now need to post could be 320 billion pounds or higher.

"We are definitely not there," he said, referring to whether funds were close to raising the required cash by selling assets.

He described last week as "one of the biggest ever for sell orders."

"You are seeing more sales this week."

The increased need for collateral was driven by pressure from regulators led by the BoE to prevent further stresses on the system, said Hemal Popat, partner, investments at Mercer.

He estimates pension funds could sell assets totalling around 300 billion pounds as they adjust hedging positions, although it is not clear how much they may have sold already.

He estimated 100 billion pounds could come from gilts and the rest from assets such as global credit, global equities and asset-backed securities.

The BoE declined to comment further.

Leading LDI providers Legal & General Investment Management and Insight Investment did not respond to requests for comment.

Liquidity in government bond markets remained poor, and yields were likely to climb further whether the BoE extended its bond-buying on Friday or not, said Craig Inches, Head of Rates and Cash at Royal London Asset Management.

"The bottom line is a lot of schemes need to rebalance their portfolios," he said.

"That is not going to stop and will take time."

Reporting by Tommy Reggiori Wilkes and Carolyn Cohn; Editing by Sinead Cruise and David Evans

https://www.reuters.com/world/uk/britis ... 022-10-11/
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