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Banks are finding the home loan market stacked in their favour after years of low mortgage rates, but are also aware that bigger mortgage bills could spell trouble for cash-strapped customers. But the higher rates will hit borrowers hard. Mortgage payments as a proportion of gross household income were on average around 20% in June, according to BuiltPlace, a property market consultancy. They could rise to around 27% - the highest since the early 1990s - if mortgage rates were to rise to 6%, the consultancy said. The rise in mortgage rates will be a blow for millions of households' finances, Sue Anderson, head of media at debt charity StepChange said.

☆ UK brings budget forward in another attempt to reassure markets
▼ + stars: | 2022-10-10 | by ( Hanna Ziady | ) edition.cnn.com time to read: +3 min

Kwarteng announced the Oct. 31 date in a letter to the Treasury on Monday, pulling his midterm budget forward by more than three weeks in an attempt to reassure rattled markets and rebellious party colleagues. He also confirmed that the Office for Budget Responsibility (OBR), the independent fiscal watchdog, will publish its assessment of the budget on the same day. Investors have been awaiting clarity on a revised date for the budget, which was initially set for November 23. It was widely expected to be brought forward after Kwarteng’s “mini” budget on Sept. 23 crashed the pound and sent shockwaves through financial markets with its promise of £45 billion ($49.8 billion) of unfunded tax cuts. The pound has recovered all of its losses but UK government bond yields remain higher than they were before the crash.

☆ BoE doubles potential bond buy-backs as emergency plan nears end
▼ + stars: | 2022-10-10 | by ( William Schomberg | ) www.reuters.com time to read: +4 min

Although the maximum auction size was raised to 10 billion pounds in Monday's operation the BoE bought only 853 million pounds' worth of debt. read moreThat left its total of bonds acquired since the launch of the emergency programme at less than 6 billion pounds, compared with the 50 billion pound maximum it could have bought. The BoE said in its statement earlier on Monday that it was prepared to deploy unused purchasing capacity in the remaining auctions this week. The BoE also said it would launch a temporary expanded collateral repo facility to help banks ease liquidity pressures facing client funds caught up in the turmoil, which threatened pension funds. The sharp sell-off in British government bonds after Kwarteng's "mini-budget" sparked a scramble for cash by Britain's pension funds which had to post emergency collateral in LDIs.

☆ BoE’s insurance policy raises question of next act
▼ + stars: | 2022-10-10 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 10 (Reuters Breakingviews) - The Bank of England is taking out insurance against a market meltdown. On Monday, the central bank said it was ready to double the daily limit of its bond-buying programme from 5 billion pounds to 10 billion pounds. This will cost users just 15 basis points above the base rate, although they face haircuts of up to 42%. (By Aimee Donnellan)Register now for FREE unlimited access to Reuters.com RegisterFollow @Breakingviews on Twitter(The author is a Reuters Breakingviews columnist. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ UK needs 62 billion pounds of cuts or tax rises to tame debt - IFS
▼ + stars: | 2022-10-10 | by ( David Milliken | ) www.reuters.com time to read: +4 min

Interest rates for new long-term government borrowing leapt to a 20-year high last month, after Kwarteng announced 45 billion pounds of unfunded tax cuts, on top of even greater short-term support for households' and businesses' energy bills. "The Chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. British government borrowing looks on course to hit 194 billion pounds this financial year and to still be 103 billion pounds in 2026/27 - 71 billion more than government forecasters predicted in March, the IFS said. COSTLY DEBTDebt interest would cost 106 billion pounds this year and 103 billion pounds in 2023/24, the IFS predicted, due to the large amount of finance raised in years gone by through issuing bonds that pay interest that rises as inflation goes up. "Such spending cuts could be done, but would be far from easy," the IFS said.

☆ UK needs 62 billion pounds of cuts or tax rises to tame debt -IFS
▼ + stars: | 2022-10-10 | by ( David Milliken | ) www.reuters.com time to read: +4 min

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. The moves came as Kwarteng prepared to head to Washington this week with International Monetary Fund criticisms of Britain's new policy direction ringing in his ears. British Chancellor of the Exchequer Kwasi Kwarteng speaks during Britain's Conservative Party's annual conference in Birmingham, Britain, October 3, 2022. Kwarteng 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. The new date for the fiscal plan leaves Kwarteng and Truss with little more than two weeks to settle divisions in her cabinet over cuts to government spending.

LONDON, Oct 10 (Reuters) - Britain's government on Monday named an experienced Treasury official as the finance ministry's new top civil servant, after unsettling investors last month by abruptly ousting his predecessor. He replaces Tom Scholar whose departure shortly after Kwasi Kwarteng became finance minister contributed to a drop in confidence among investors since Liz Truss took over as prime minister. The removal of Scholar broke the British convention that non-partisan officials remain in post after a change of political leadership. It came shortly before Kwarteng announced a string of unfunded tax cuts that caused turmoil in financial markets. Bowler's appointment came as a surprise after newspapers last week reported that Truss wanted someone new to the Treasury to take the department's top job.

☆ Pension fund blowup faces brutal second act
▼ + stars: | 2022-10-06 | by ( Aimee Donnellan | ) www.reuters.com time to read: +5 min

The Bank of England announced a 65 billion pound gilt-buying scheme to stabilise markets and rescue pension funds. Bailey’s move may have been too late to stop some pension funds from having to close out their hedges, like interest rate swaps or futures. The rate at which retirement payments are discounted will also fall, pushing up the pension fund’s future liabilities, but without a corresponding asset gain. Meanwhile, investors like Goldman Sachs are hoovering up cut-price stakes in private equity vehicles, which LDI funds are selling. They also held 78 billion pounds and 317 billion pounds in property and equities respectively.

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. The pound rose after the announcement to around $1.12 — about the value it held before the Sept. 23 budget announcements. The dramatic reversal comes just hours after Truss defiantly defended the tax cut and her broader radical economic agenda, 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. The plan to cut taxes for the wealthy was part of a broader "mini-budget" announced soon after the new administration took office.

☆ Sterling slippery, stocks stalling as BoE boost fades
▼ + stars: | 2022-09-29 | by ( Tom Westbrook | ) www.reuters.com time to read: +4 min

S&P 500 futures fell 0.2%. European futures rose 0.6% and FTSE futures lifted 0.3%. The U.S. dollar index had its worst session in 2-1/2 years on Wednesday, recoiling from record highs. The Australian dollar fell 0.8% to $0.6470. Brent crude futures fell 0.8% to $88.62 a barrel.

"The exchange rate has been the biggest topic of conversation since we got here," said Jeff Skipper, 50, an electrician. Register now for FREE unlimited access to Reuters.com Register"Everything is pretty expensive for us," said Valerie, a 47-year old university administrator. read moreSterling hit a record low of $1.0327 on Monday, having plummeted 20% against the dollar this year. "Now it's one dollar to the pound…It's really hit us," said Colin Taylor, a retired telecoms engineer from the United Kingdom who was also visiting San Francisco with his wife. The dollar index, which measures the greenback against a currency basket, hit a fresh 20-year high of 114.78 on Wednesday.

☆ Stocks bounce but sterling slippery after BoE buys bonds
▼ + stars: | 2022-09-29 | by ( Tom Westbrook | ) www.reuters.com time to read: +3 min

The Bank of England said it will buy as much as £5 billion ($5.4 billion) a day of long-dated government bonds until Oct. 14. For one, this re-stimulation will lift, not quell UK inflation, and that's bad for bonds and sterling." The mood gave pause to the U.S. dollar's march higher and the dollar index had its worst session in 2-1/2 years as the greenback recoiled from lofty heights. The dollar index was up 0.1% to 113.12, within striking distance of Wednesday's 20-year high of 114.78. ($1 = 0.9252 pounds)Register now for FREE unlimited access to Reuters.com RegisterEditing by Shri NavaratnamOur Standards: The Thomson Reuters Trust Principles.

A source at the Treasury said Kwarteng had no plans to resign or reverse any policies. DO THINGS DIFFERENTLYBritain's first Black Chancellor, Kwarteng is the son of Ghanaian immigrants. In Kwarteng, Truss picked a key ideological ally with whom she co-wrote a book that spells out a low tax, small state, deregulated vision of Britain. One other aspect that raised investor ire was Kwarteng's decision to release a fiscal plan without the accompanying scrutiny of the independent Office for Budget Responsibility. Kwarteng will set out a medium term fiscal plan alongside OBR forecasts on the scale of government borrowing on Nov. 23.

☆ Paul Krugman, Mohamed El-Erian, and Nouriel Roubini are tearing into UK leaders whose spending plans upended markets. Here's what the 3 top economists have said.
▼ + stars: | 2022-09-29 | by ( Theron Mohamed | ) www.businessinsider.com time to read: +4 min

Paul Krugman, Mohamed El-Erian, and Nouriel Roubini blasted the new UK government's spending plans. Here's what the three leading economists have said about the fiasco:Paul Krugman"Trussonomics is deeply stupid," Krugman tweeted on Wednesday. Advocates of supply-side economics tout tax cuts, deregulation, and lower borrowing costs as the best tools to drive economic growth. El-Erian slammed the UK's planned tax cuts as "unsettlingly large, relatively regressive and unfunded" in the column published Wednesday. Nouriel Roubini"Truss and her cabinet are clueless," Roubini tweeted on Saturday about the government's fiscal plans.

Yet the government’s unfunded mini-budget on Sept. 23 stoked fears of runaway inflation, causing gilt yields to soar. The mess left pension funds scrambling to raise margin, and they wound up doing so by selling their most liquid asset – gilts. And the more the pension funds sold, the more gilt prices fell, causing a vicious spiral and fears the funds could run out of cash. By the time Governor Andrew Bailey intervened, certain pension funds had been hit with margin calls as high as 100 million pounds. Ahead of the BoE’s announcement, strategists said the 2.1 trillion pound gilt market was seizing up, with very poor liquidity and pricing quality being a clear sign of market dysfunction.

☆ The UK is gripped by an economic crisis of its own making
▼ + stars: | 2022-09-29 | by ( Mark Thompson | ) edition.cnn.com time to read: +8 min

“While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position,” said Paul Dales, chief UK economist at Capital Economics, commenting on the bank’s intervention. “It wouldn’t be a huge surprise if another problem in the financial markets popped up before long,” Dales added. The UK government should also postpone its tax cuts, El-Erian said. We look like reckless gamblers who only care about the people who can afford to lose the gamble,” one former Conservative minister told CNN. “Truss and Kwarteng are now facing a severe economic crisis as the world’s financial markets wait for them to make policy changes that they and the Conservative party will find unpalatable,” the Eurasia analysts wrote.

The pound fell to a record low against the dollar on Monday, having plunged the previous Friday after the UK government announced unfunded tax cuts . "There is a high correlation to bitcoin volume growth and political/monetary instability," he said. read moreVersus the dollar, bitcoin is down around 58% so far this year, while the British pound is down 20%. Bitcoin was trading around $19,515 on Wednesday and at 17,940 versus the British pound . The cryptocurrency hit a two-week high against the British pound on Tuesday.

"There will be impacts, there’s correlations ... some market volatility, and then how it weighs in the global growth picture," said Paul Malloy, head of municipals at Vanguard. The wild swings in the pound have ricocheted across currency markets, where volatility was already climbing. According to the widely watched Deutsche Bank Currency Volatility Index , volatility across currencies on Wednesday hit its highest level since the March 2020 COVID-19- induced market meltdown, jumping more than 20% from levels last week. Closely followed indicators of financial stress remain contained. U.S. stock market volatility as measured by the "fear index," the VIX (.VIX), has also climbed in recent days but remains below its 2022 highs.

☆ With Interest Rates Rising, Companies Look to Unload Pension Liabilities
▼ + stars: | 2022-09-28 | by ( Jennifer Williams-Alvarez | ) www.wsj.com time to read: +6 min

Rising interest rates are boosting corporate pension plans, providing finance chiefs with an option to lighten their companies’ balance sheets and transfer obligations to insurers. PREVIEWWhen interest rates rise, liabilities for defined-benefit plans—a type of pension plan that promises fixed amounts to participants—shrink. They can also move just a portion of their pension obligations, but that still requires a high funding status. “If interest rates level off or decrease, the funded status could fall pretty quickly,” said Matt McDaniel, a partner at Mercer who advises companies on pension risk transfers. Recent stock market declines have hurt some defined-benefit pension plans invested in publicly traded equities, Mr. McDaniel said.

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"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the central bank said in a statement that immediately eased pressures on soaring British government bond yields. The Bank of England said on Monday it would not hesitate to raise interest rates and was monitoring markets "very closely". Earlier on Wednesday 30-year British government bond yields rose above 5% for the first time since 2002. "An irresponsible, destructive fiscal policy." In his remarks on Tuesday, BoE Chief Economist Pill said financial market upheaval would have a big impact on the economy and would be factored into the Bank's next forecasts.

☆ Pound drops more than 1% as Bank of England steps into bond market
▼ + stars: | 2022-09-28 | by ( Harry Robertson | ) www.reuters.com time to read: +3 min

LONDON, Sept 28 (Reuters) - Sterling fell more than 1% against the dollar and euro on Wednesday after the Bank of England said it would step in to calm the UK's frenzied bond markets. The Bank said it will carry out temporary purchases of bonds and postpone the planned start of its gilt sale programme. The Bank's dramatic move came after a morning of disorder in the gilt market. The yield on the 30-year benchmark gilt fell by more than 50 basis points at one point. "Overall we would favour a little more sterling stability on today's intervention, but market conditions remain febrile," Turner said.

☆ Behind Britain’s self-inflicted financial crisis: podcast
▼ + stars: | 2022-09-28 | by ( Aimee Donnellan | ) www.reuters.com time to read: 1 min

LONDON, Sept 28 (Reuters Breakingviews) - Sterling fell to a record low and gilt yields soared after finance minister Kwasi Kwarteng unveiled a raft of unfunded tax cuts. In this Viewsroom podcast, Breakingviews columnists explain the long-term damage to the UK’s credibility and what will rebuild investors’ confidence. Listen to the podcastFollow @aimeedonnellan on TwitterRegister now for FREE unlimited access to Reuters.com RegisterEditing by Oliver Taslic and Streisand NetoOur Standards: The Thomson Reuters Trust Principles. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Sterling drops against dollar as Bank of England intervenes in bond market
▼ + stars: | 2022-09-28 | by ( Harry Robertson | ) www.reuters.com time to read: +3 min

It was on track for its biggest monthly fall against the dollar since the financial crisis in autumn 2008, having shed almost 9% in October alone. The Bank said it had seen "dysfunction" in the market for long-dated gilts and that it would buy as many as necessary to rectify the situation. Ratings agency Moody's also weighed in on Tuesday, saying the unfunded tax cuts were "credit negative" and likely to weigh on growth. "This move from the Bank of England won't stem moves against the UK debt and currency markets on their own," said Mike Owens, global sales trader at Saxo Markets. "While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position," said Paul Dales, chief UK economist at Capital Economics.

☆ PIMCO CIO says UK market chaos not systemic but will have global impact
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: +1 min

WASHINGTON, Sept 28 (Reuters) - The collapse of the British pound and subsequent sell off in the country's bond market in recent days do not pose systemic risks but will affect global markets, PIMCO chief investment officer Dan Ivascyn told the CNBC Seeking Alpha conference in New York. Ivascyn added that the Bank of England's decision overnight to prop up the bond market was a short-term fix that would not address waning investor confidence in British policy. Since Friday's UK mini-budget budget flagged 45 billion pounds ($48 billion) worth of unfunded tax cuts, sterling has lost 6% of its value and hit record lows while British bond prices soared. The chaos in a major developed economy adds to unease already generated by sharp interest rate rises from the United States and elsewhere. Register now for FREE unlimited access to Reuters.com RegisterReporting by Davide Barbuscia; writing by Michelle priceOur Standards: The Thomson Reuters Trust Principles.

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