Once again the UK is facing market turmoil following the raft of government tax cuts announced last Friday during the Chancellor’s ‘Mini-budget.’
As the currency markets opened on Monday morning we saw Sterling drop to all-time lows, at one point being worth just $1.03. We also saw GBP/EUR rates hitting 2-year lows at the worst point of trading.
On Wednesday, the Bank of England announced that they would intervene in the government bonds market to stabilise a collapse in the price of bonds. They said the decision to buy government bonds was caused by ‘a material risk to UK financial stability’.
The pound fell initially post announcement before recovering close to levels seen at the start of the day.
Prime Minister Liz Truss has also been on a PR offensive in order to try and stabilise the market since the announcement last week with limited success.
In the last two days, Sterling has seen gains off the early week lows, predominantly due to Wednesdays’ BoE intervention in the bond market, as well the ONS’s announcement this morning that the UK had avoided a technical recession. This saw economic output rise by 0.2% between April and June which was revised up from the previous reading of -0.1%.
As we write, the Government is meeting with the OBR following growing calls for their independent analysis of the UK’s economic outlook to be published. We can expect plenty of politicking over the next week, especially as the markets remain incredibly volatile.