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4 Nov, 2022 15:54

UK was ‘hours’ away from potential total meltdown – Bank of England

The fallout from Truss' “mini-budget” was “a very real threat to financial stability," the institution's governor has told Channel 4
UK was ‘hours’ away from potential total meltdown – Bank of England

Britain narrowly avoided a financial crisis in September that could have seen some pension funds totally collapse, the governor of the Bank of England, Andrew Bailey, told Channel 4 on Thursday.

Asked how close the UK came to a potential total economic meltdown after Liz Truss’ mini-budget was announced, Bailey said: “I think at the point when we intervened, I can tell you that the messages we were getting from the markets were that it was hours.”

Truss’s so-called “mini-budget” included the biggest tax cuts since 1972, funded by a huge increase in borrowing, without an explanation as to how the government would pay it back. The measures caused the pound to hit an all-time low against the dollar and the price of UK government bonds – known as gilts – to collapse.

The Bank of England intervened by announcing an expansion of its emergency bond-buying to “restore orderly market conditions.”

It was becoming unstable and it was affecting pension funds, for instance, and how they were operating. So, we had to step in quickly and we had to step in quite decisively. This felt, and was, a very real threat to financial stability,” Bailey said.

His interview came just hours after the regulator hiked the interest rate from 2.25% to 3% to try and curb soaring inflation.

Bailey also warned that Britain was facing its longest recession since records began and warned of a “tough road ahead” for the UK and its households.

For more stories on economy & finance visit RT's business section

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