Pound near two-week high as Kwarteng brings forward debt-cutting plan – business live

Key events 3m ago Pound hits $1. 14 as rally continus 5m ago Legal & General reassures investors over pension fund turmoil 48m ago Mortgage rates rise sharply as squeeze tightens 1h ago Mel Stride: This could mean smaller interest rate rise in November 1h ago Introduction: Sterling keeps recovering as Kwarteng brings forward debt cutting plan Filters BETA Key events ( 5 ) UK ( 4 ) Kwasi Kwarteng ( 4 ) Bank of England ( 4 ) 3m ago 08. 38 BST Pound hits $1.

14 as rally continus Sterling is continuing to rally, and has now hit $1. 142 for the first time in two weeks. That’s a gain of around a cent this morning, taking the pound back to levels a few days before the mini-budget.

The pound vs the US dollar Photograph: Refinitiv Yesterday’s decision not to scrap the 45p tax rate, the bringing forward of Kwasi Kwarteng’s medium-term plan for the public finances, and the Bank of England’s emergency invervention in the bond market last week are all calming nerves. The dollar is also weaker generally, which is helping other currencies climb back off the mat. Sterling now up 1.

3% against the dollar since the day before the mini-budget. — Mike Bird (@Birdyword) October 4, 2022 But the pound’s weakness may not be over, warns Matt Britzman, Equity Analyst at Hargreaves Lansdown : . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Sterling strengthened on Monday as the UK government agreed to abandon the plan to axe the top rate of tax. However, this mini reversal is likely to be short-lived in its nature as sterling remains under significant pressure in the face of a looming recession and a US Fed that looks likely to continue aggressive rate rises. Updated at 08.

41 BST 5m ago 08. 36 BST Legal & General reassures investors over pension fund turmoil Photograph: Alessia Pierdomenico/Reuters In the City, Legal & General has reassured investors about its financial health following the turmoil in the pension fund sector last week. Shares in L&G have jumped over 3% in early trading, after it said it had not had problems meeting meeting collateral calls and has not been a forced seller of gilts or bonds.

L&G told investors that its expectations for this year were unchanged despite recent volatility, explaining: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} One of the strengths of the UK insurance regime is that we regularly monitor and stress our capital and liquidity requirements to a 1 in 200 stress level so that we can withstand shocks like we have seen in the past few days.

That shock was riven by a strategy called liability-driven investing, or LDI, which blew up in last week’s bond market turmoil. The idea of LDI is to help pension funds to offset liabilities and risks on their books, by mirroring movements in their liabilities. But the slump in UK gilt prices forced pension funds to post more collateral to offset rising liabilities, leading some to dump assets and raise cash at short notice.

The crisis raised fears of a ‘doom loop’, in which falling asset prices led to more forced selling, which drove prices even lower. ‘I’d never seen anything like it’: how market turmoil sparked a pension fund selloff Read more 26m ago 08. 15 BST Torsten Bell , the head of Resolution Foundation , has demolished the suggestion that it’s somehow unfair for benefits to rise in line with inflation: Truss ally: ‘How can it be right that someone who gets up at 6am & works hard all day is seeing their pay go up by 5% or so and someone who is not working and is on benefits gets a 10% rise?’ They claim that it will increase incentives for people to get jobs and fill vacancies — Steven Swinford (@Steven_Swinford) October 4, 2022 As Bell points out, benefits are far from generous, and much of the money goes to people who are also working (but being poorly paid), or unable to work due to disability or caring responsibilities.

Plus, the cost of living crisis hits the poorest in our society the hardest. This winter will be toughest for them. Since this row – and arguments like this – are going to dominate the next month, a few facts: https://t.

co/nxrepyZx0w — Torsten Bell (@TorstenBell) October 4, 2022 The people who have dropped out of labour market post-pandemic are largely not on benefits. This isn’t an incentives issue in a simple sense – @DWP wouldn’t know how to contact, let alone ‘incentivise’ these people to work, if they tried… — Torsten Bell (@TorstenBell) October 4, 2022 Those worried about incentives should also pay attention to some history ie the long term erosion of basic benefit support. In early 80s basic rate of benefits was 25% of average earnings.

Now it’s less than 15%. The life of riley is not being lived. pic.

twitter. com/Szcz0k7lqN — Torsten Bell (@TorstenBell) October 4, 2022 On the “fair to those going out to work” arguments, as ever this ignores the fact that 40% of this on Universal Credit are working pic. twitter.

com/EVmbif6qAg — Torsten Bell (@TorstenBell) October 4, 2022 Of those not currently working, why aren’t they? Largely because government doesn’t think they should – which is basically those with a disability or caring responsibilities. Those required to look for work are finding it pic. twitter.

com/3xxL8R3a60 — Torsten Bell (@TorstenBell) October 4, 2022 Of those not currently working, why aren’t they? Largely because government doesn’t think they should – which is basically those with a disability or caring responsibilities. Those required to look for work are finding it pic. twitter.

com/3xxL8R3a60 — Torsten Bell (@TorstenBell) October 4, 2022 Lastly, it shouldn’t need saying, but obviously does: an energy (and food) price driven inflation bout does not affect us all equally. Rising costs of essentials are far harder for those on lowest incomes to bear – they face significantly higher inflation rates right now pic. twitter.

com/WBXLDKQ7nJ — Torsten Bell (@TorstenBell) October 4, 2022 To save significant £s via lower benefit upratings you will need to go far beyond lazy stereotypes of adults sleeping behind curtains – it’ll mean cutting benefits for children & those with disabilities because that’s where we spend £s (remember housing support is already frozen) — Torsten Bell (@TorstenBell) October 4, 2022 35m ago 08. 06 BST Sarah Butler The cost of living crisis means many consumers will be spending less than usual as we head towards Christmas. British shoppers are expected to spend £4.

4bn less on non-essentials – a fall of 22% – in the last three months of the year, our retail correspondent Sarah Butler reports. Almost 60% of shoppers expect to cut back on non-food spending in the so-called “golden quarter”, when most retailers book the majority of profits, according to research by Retail Economics with retail technology firm Metapack. The outlook piles further pressure on businesses which are already facing higher energy bills and labour costs as well as an increase in the cost of goods forcing many to cut back on trading hours.

Richard Lim , the chief executive of Retail Economics , said: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “Inflation is set to peak at exactly the wrong time for retailers.

Shoppers’ budgets are already under intense pressure with inflation reaching decade-highs across international markets. Consumers are concerned, budgets are under pressure, and households are intending to cut back this year as they struggle to make ends meet. British shoppers likely to spend £4.

4bn less on non-essentials during Christmas period Read more 48m ago 07. 53 BST Mortgage rates rise sharply as squeeze tightens People looking to enter the housing market, or to remorgage their loans, are already facing the consequences of the mini-budget market mayhem. After pulling mortgage deals off the market last week, British banks are re-entering the mortgage market with interest rates approaching 6% .

The FT has more details: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Barclays, Skipton Building Society, NatWest, Virgin Money and Nationwide are among the lenders to increase rates on new mortgage deals in the wake of chancellor Kwasi Kwarteng’s “mini” Budget just over a week ago, which sent gilt yields soaring.

The average rate on two-year fixed deals jumped to 5. 75 per cent on Monday, up from 4. 74 per cent on the day of Kwarteng’s announcement on September 23, according to data provider Moneyfacts.

The move will protect lenders from higher interest rate, with the money markets currently predicting the Bank of England’s base rate could hit almost 5. 5% by next summer. But it makes mortgages less affordable, and some unlucky people will find they are now priced out of the market through no fault of their own.

Lenders insulate themselves with higher rates to see out the next few years, leaving many left out in the cold https://t. co/sE5w9R8EWZ — Emma Fildes (@emmafildes) October 3, 2022 1h ago 07. 36 BST Mel Stride also said he would have to “think long and hard” if asked to vote to increase benefits in line with earnings rather than inflation (which would mean real terms cuts in benefits).

The Treasury Select Committee chairman told BBC Radio 4’s Today programme: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “I’d need to see all the details, I’d need to see it in the round, but I’d have to think long and hard about that.

“Because the last time the benefits were uprated, because of the way the mechanism works they’re uprated in April but they’re pegged against the previous September’s inflation, and the way it worked last time was the uprating was just 3. 1% because inflation was low the previous September, but of course inflation was much higher than that (in April). “So we’re coming off the back actually of a kind of quite a strong real-terms squeeze on those benefits already so I think that will be a really tough call to make.

” Tory MPs plot to avert welfare squeeze after humiliating U-turns Read more 1h ago 07. 34 BST Mel Stride: This could mean smaller interest rate rise in November Kwasi Kwarteng’s decision to accelerate the publication of his plan to cut Britain’s debt could lead the Bank of England to raise interest rates less sharply next month. That’s the view of Conservative MP Mel Stride , the chair of the Treasury Committee, who argues: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Provided the OBR forecast and new fiscal targets provide reassurance then bringing these forward should calm markets more quickly and reduce the upward pressure on interest rates to the benefit of millions of people up and down the country. “In particular getting the forecast out ahead of the MPC meeting on 3rd November might help to reassure our rate setters that they can go with a smaller base rate increase than would otherwise be the case.

” The Bank is due to set interest rates on November 3rd, and chief economist Huw Pill has already indicated there could be a ‘significant’ rise. The money markets are currently pricing in a rise of at least 1%. 1h ago 07.

31 BST Introduction: Sterling keeps recovering as Kwarteng brings forward debt cutting plan Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The pound continues to recover from its mini-budget shock, thanks to a pair of u-turns from Kwasi Kwarteng. The chancellor is bringing forward the announcement of his plan to bring down UK debts in the medium term, following pressure from the financial markets, economists and some MPs desperate to see how the ‘growth plan’, and large tax cuts, will be paid for.

Kwarteng, who was previously set to publish his medium-term fiscal plan alongside a set of economic forecasts on 23rd November , will now announce it sooner – likely by the end of the month. Crucially for investors, we should also finally get full forecasts from Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR). News of the plan broke last night, just hours after Kwarteng ripped up the plan to scrap the 45p top tax rate for the highest earnings.

Kwasi Kwarteng ‘to bring forward planned fiscal statement’ in another U-turn – as it happened Read more As one government source put it to Reuters: “OBR can move quicker, so can we”. And so can the pound. And after hitting a record low last week around $1.

035, it has now climbed above its mini-budget levels to around $1. 135, the highest in almost two week. The pound vs the US dollar Photograph: Refinitiv The recovery for sterling has settled some nerves in the currency market.

NatWest Markets ’ head of economics and markets strategy John Briggs said dropping the 45p tax band had been well-received by investors. . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “The about-face . . .

will not have a huge impact on the overall UK fiscal situation in our view. “[but] Investors took it as a signal that the UK government could and is at least partially willing to walk back from its intentions that so disrupted markets over the past week. ” The Bank of England’s emergency intervention in the long-term borrowing gilt market is also helping calm nerves, although yesterday it only bought £22m of 30-year gilts and rejected £1.

8bn of offers. That looked like a signal to the markets that while the BoE was determined to maintain stability, they would not buy gilts at any price to keep borrowing costs low Sending clear signal that this is a financial stability operation and they are not in the business of keeping gilt yields low for the sake of it ie they are deliberately pushing back on the fiscal dominance narrative. Ball back in government’s court — Rupert Harrison (@rbrharrison) October 3, 2022 Yeterday, the IFS thinktank warned that mammoth spending cuts would be needed to get borrowing back on track, if Kwarteng presses on with the rest of his tax-cutting mini-budget.

From a fiscal point of view important to remember cut to 45p rate was just about smallest part of the “mini budget”. What was a £45bn tax cutting package is now a £43bn package. This U turn has, in itself, essentially no effect on fiscal sustainability.

— Paul Johnson (@PJTheEconomist) October 3, 2022 And a new political row is brewing, over whether the government will lift universal credit and other working age benefits in line with inflation. Failure to do so would be ‘hostile and harmful’, the Joseph Rowntree Foundation warned last weekend, and deliver a devastating blow to millions of families on low incomes. Failure to raise benefits would be ‘hostile and harmful’, Truss is warned Read more The agenda 10am BST: Eurozone PPI index (showing how fast factory prices rose in August) 2pm BST: IMF to release October 2022 Global Financial Stability Report Analytical Chapters 3 3pm BST: US factory orders for August Topics Business Business live Economics Stock markets FTSE Sterling Reuse this content.