Bank of England urged to slow bond-selling plan to help cut record UK borrowing costs
Andrew Bailey has been urged by former Bank of England policymakers to ease pressure on the government’s borrowing costs by cutting back its bond-selling plans.In a crunch week for the economy, four influential ex-members of the Bank’s monetary policy committee (MPC) said a change in course was needed.Britain’s long-term borrowing costs have hit their highest level in 27 years, intensifying the pressure on chancellor Rachel Reeves before her 26 November autumn budget.Threadneedle Street has blamed the rise on global factors., triggered by Donald Trump’s trade war and his assault on the independence of the US Federal Reserve.
However, the Bank admitted last month that a £100bn programme of bond sales to unwind its crisis-era quantitative easing scheme is also playing a role.With the government under pressure on the economy, the central bank is widely expected to keep its base rate unchanged on Thursday at 4%, but could signal a slowdown in its bond-selling plans for the next 12 months.The Bank’s decision comes in a busy week for economic news, with official data due on the jobs market and inflation, as Reeves gears up for a challenging autumn budget.Michael Saunders, a former MPC member, now at the consultancy Oxford Economics, urged the Bank to scale back its disposals amid febrile conditions in markets.“It is highly likely they will slow the pace … The gilt market and bond market in general are weak and volatile,” he said.
“Current conditions are such that a higher pace of active sales might have an undesirable effect on pushing up yields further.”A second ex-MPC member, who asked to remain anonymous, said: “It definitely has to be reduced.Not reducing it would be completely tone deaf to what’s happening in the global bond markets.”Threadneedle Street intervened during the depths of the financial crisis to buy UK government bonds – aiming to crash borrowing costs close to zero – in a programme that was ultimately expanded up to reach £895bn in total.The Bank is now winding down quantitative easing – a process known as “quantitative tightening” (QT) – and has shed about £100bn of bonds in the past year through active sales and allowing maturing debts not to be replaced.
It still has a portfolio worth about £560bn, having disposed of most of its holdings at a loss.City investors widely expect the Bank to scale back its QT programme to about £70bn for the year ahead.However, this would involve maintaining active sales at current levels because fewer gilts are due to expire over the next 12 months.Sushil Wadhwani, who was on the MPC between 1999 and 2002, called for a halt to active sales entirely amid worries over the impact of QT on the bond market.“On monetary policy grounds, the Bank should switch to passive QT [only allowing maturing debt to expire],” he said.
“Irrespective of what Andrew Bailey says, the 30-year yield has a significant impact on confidence in the UK economy.I have foreign investors bring it up all the time.”Scaling back the Bank’s QT programme could help the chancellor by easing some of the pressure on long-term gilt yields.Such a step would also save the Treasury money because Threadneedle Street has been selling its bonds at a loss.Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionAndrew Sentance, another former MPC member, said cutting the Bank’s QT programme to about £70bn was sensible because markets expected such a reduction.
However, he warned Reeves against banking on any windfall,“The job of the Bank is not to make the chancellor’s life easy,Its job is to control inflation,And a modest winding back on QT would be quite consistent with that,”In a rare piece of upbeat news for the chancellor, a survey by trade body Make UK suggests an upturn in the key manufacturing sector in the third quarter, with output and export orders rising.
Make UK’s chief executive, Stephen Phipson, said all the indicators in the survey, carried out by consultancy BDO, had improved.“After a period of considerable uncertainty in global markets, these figures are an encouraging sign that manufacturers’ confidence is improving and, more importantly, being translated into growth and investment.“However, one swallow doesn’t make a summer, and with UK and European markets in particular remaining anaemic it wouldn’t take much to knock prospects for further growth.”The IPPR thinktank has estimated that halting active sales – matching the US Federal Reserve and European Central Bank – could save the Treasury more than £10bn a year.However, holding on to the bonds would not be cost free, because the Bank earns less interest on its gilt portfolio than it pays out on commercial bank reserves.
Last month, the IPPR called on Reeves to raise taxes on the country’s biggest banks amid windfall profits on their reserves parked at Threadneedle Street,Some economists have also called for the Bank to pay lower rates of interest on some commercial bank reserves,
Phillipson and Powell kick off Labour deputy race with very different visions for role
Bridget Phillipson and Lucy Powell fired the starting pistol in Labour’s deputy leadership race on Sunday, with the education secretary saying now was not the time to “look backward” on mistakes made by the party in its first year of government.The pair set out strikingly different approaches to the role of deputy leader, with Powell saying she would be an independent voice who would speak truth to senior leadership including Keir Starmer.Phillipson is widely seen as No 10’s choice for the role, with Powell recently ousted from the cabinet as leader of the House of Commons.Powell, in her first message to members, promised to be a “full-time deputy leader” and an “independent voice” as opposed to Phillipson’s potential dual role as education secretary.“I really want this Labour government to succeed, and sometimes that means having the difficult conversations,” she said in her email to constituency Labour parties
Labour MPs will hope Starmer’s words after far-right rally signal shift in tone
If there is a cause that could be said to unite almost all Labour MPs and members from left to right, it would be equality and anti-racism. Many of them will have spent their early political lives in trade unions, student movements or charities – or working as human rights lawyers.Over the summer, MPs have agonised about their political futures and that of progressive politics. Missteps on the economy, welfare, Gaza and relations with the parliamentary party have been part of that.But what has crystallised the sense of crisis for many has been the rapid rise in far-right rhetoric and violence, as well as Nigel Farage’s perma-presence in the media and his plans for mass deportations
NHS will die under Reform unless doctors stop striking and work with Labour, says Wes Streeting
Unless doctors stop striking and help Labour fix the damage inflicted by the Tories, the NHS will end up dying under a government led by Reform, Wes Streeting has warned.Speaking at a special meeting of the British Medical Association’s representative body on Sunday, the health secretary said hospitals and GP surgeries were “hanging by a thread” after more than a decade of neglect by the Conservatives.Progress was being made at rescuing the NHS from the biggest crisis in its history, Streeting insisted, but he said it required “a team effort” and would only be successful if medics became “friends, not foes”.“The alternative is strikes continue to hold back the NHS’s recovery, the costs of industrial action slow down investment in new technology, equipment and additional specialty places, the changes that we all agree need to be made are blocked, and patients continue to be failed,” he said.“From there, the public will conclude that Labour has failed on the NHS and they will elect a Reform government instead – a party that has openly said it will replace the NHS with an insurance-based system
UK politics: Scale of ‘Unite the Kingdom’ march shows free speech ‘alive and well’ in UK, says minister – as it happened
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As Starmer’s popularity tanks, what can Labour learn from Zohran Mamdani’s success in New York?
Progressives in the UK and US are grappling with the same question. Why have rightwing populists become so much more successful at tapping into public concern? And why are so few politicians on the left connecting with ordinary people?Barely a year after taking power in Britain, Labour’s popularity has collapsed with unprecedented rapidity against surging support for Nigel Farage’s Reform UK.In the US, a year after Joe Biden’s defeat, the Democrats are still derided by swathes of voters and remain at a loss for how to take on Donald Trump’s unique brand of politics.But while Labour and the Democrats languish in nationwide polls, there are exceptions. In New York over the summer, Zohran Mamdani rose from little-known assembly member to social media sensation and heavily favoured Democratic nominee in November’s mayoral contest
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