FTSE 100 Live: Bank of England intervenes to calm UK debt market; London stocks fall

The Bank of England intervened to calm the fraught conditions in UK debt markets by pledging to buy long-dated gilts and suspending plans to sell its existing holdings.

The FTSE 100 fell further under the 7000-point mark after closing under it for the first time in six months yesterday. High street stocks made notable declines, after data from the British Retail Consortium showed record shop price inflation, led by soaring food prices.

The pound was back under $1.07 after the International Monetary Fund called on the UK government to look again at its tax cut plans.

Main points on a dramatic day for markets

• Bank of England intervention eases gilt yields as it points to ‘material risk to UK financial stability’

• Bank of England intervenes in UK bond market by buying long-dated gilts

• ‘Monetary U-turn’; ‘better late than never’ -- City experts react

• Insurance stocks hit the bottom of the FTSE 100 as rate expectations get redrawn

Bank of England intervention pays off, for now

17:26 , Simon Hunt

A dramatic intervention by the Bank of England this morning to stave off “a material risk to UK financial stability” seems to have paid off in the short-term, with yields on UK government bonds falling.

Yields on 30-year gilts dropped below 4% in the afternoon from as high as 1% this afternoon, as investors were calmed by the Banks offer to buy back billions of pounds of government debt to restore order to the the stressed market. But the medium-to-long term prospects of the intervention are unclear -- with some of the view that the move is just a sticking plaster.

Analysts at investor platform AJ Bell commented: “The Bank of England did achieve its objective of lower Gilt yields. Yet it is not clear how effective this policy will be over the longer term, as the Bank of England remains committed to selling £80 billion of Gilts over the next 12 months to reduce the QE stimulus, shrink its balance sheet and try to rein in inflation.

“The Bank’s inflation-fighting credentials are already looking tatty as it moves to increase interest rates more slowly than other central banks such as the US Federal Reserve. Now, returns to bond buying and its efforts to engineer a soft-landing for the UK economy mean the Bank are still facing questions.”

FTSE 100 closes up 22 points to 7,005

17:16 , Simon Hunt

The FTSE 100 closed up just above 7,000 at the end of a wild day’s trading which saw the index drop as much as 140 points before interventions in the bond markets by the Bank of England to head off what it called “a material risk to UK financial stability.”

Insurance companies and pension fund providers were among the biggest loses from the day’s trading, with Legal and General down 5.6% and Aviva down 4.9%. They benefit in the long term from rising rates, but often have carefully calibrated positions set around their expectations for monetary policy which may need to be redrawn at short notice, creating a need for cash to close off hedging positions.

Property companies were the biggest winners, with Land Securities up 6.9% and British Land up 5.7%.

Kwasi Kwarteng seeks to reassure market of fiscal discipline; some remain skeptical

16:12 , Simon Hunt

Chancellor Kwasi Kwarteng “underlined the government’s clear commitment to fiscal discipline” at a meeting with bank bosses on Wednesday morning, though some at the meeting remained skeptical of Kwarteng’s fiscal plans.

“There was a lot of nervousness in the room,” one attendee at the meeting told the Reuters news agency, adding: “They want the perfect world. It’s a little bit concerning.”

According to a read-out of the meeting Kwasi Kwarteng “underlined the government’s clear commitment to fiscal discipline and reiterated that he is working closely with the Governor of the Bank of England and the OBR ahead of delivering his Medium Term Fiscal Plan on 23 November”.

It added: “The Chancellor also discussed with attendees how last Friday’s Growth Plan will expand the supply side of the economy through tax incentives and reforms, helping to deliver greater opportunities and bear down on inflation.”

Representatives from Bank of America, JP Morgan, Standard Chartered, Citi, UBS, Morgan Stanley and Bloomberg all attended.

Bank of England says it will buy £5 billion of gilts a day

15:34 , Simon Hunt

The Bank of England has said it will buy up to £5 billion of UK government bonds each week day from this afternoon till the 14th of October, meaning it is set to spend as much as £65 billion over the next two weeks.

Gilt purchases for the purposes of financial stability will be financed by central bank reserves.

In a statement the Bank said: “In line with the Bank of England’s financial stability objective, the Bank will carry out purchases of long dated gilts in a temporary and targeted way. The purpose of these purchases is to restore orderly market conditions.”

New York stocks snap six-day losing streak as upbeat corporate news offers some relief

14:44 , Michael Hunter

The S&P 500 in New York ticked modestly higher in early trade, turning around from six consecutive sessions of declines, as investors took heart from robust corporate news.

The broad US stock index gained 2.18 points to 3,649.40, a rise of 0.1%. It was helped by a surge in shares in Biogen after the pharmaceutical company reported successful trials of a drug for Alzheimer’s disease. The stock gained almost 40%.

Bank of England market intervention: ‘fiscal mistakes can’t be corrected by monetary actions' -- more City reaction

14:33 , Michael Hunter

The Bank of England’s emergency move to head off what it called “a material risk to UK financial stability” from the bond market has reverberated around London since its dramatic announcement just before 11am.

The BoE will buy government debt from today for two weeks to bring yields on the bonds down and stop the tumble in the price of the debt from hurting the capital position of major asset managers, including pension funds and insurers. So far, it has worked, with investors expecting returns of closer to 4% than 5% on benchmark 10-year gilts for the first time in days, although investors are waiting to find out the size the intervention needed to reach.

Here is a selection of further reaction from City experts:

Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management: “Truss and Kwarteng broke the UK gilt market after the mini-Budget on Friday. We are in crisis territory right now, and emergency action has to be taken. Borrowing costs have to come down. We hope that the Government will backtrack but fear it won’t. Truss and Kwarteng are in hiding. This will pile further pressure on Sterling, though, as the Bank of England never intervenes in this market.”

Samuel Mather-Holgate of advisory firm Mather & Murray Financial: “As soon as the bank announced, gilt rates dropped half a percent. This was a much needed intervention in the market, the only other alternative being to jack [interest] rates up by up to 2%. This would have crushed homeowners with mortgages. It’s further evidence that the mini-Budget was a disaster.”

Gordon Shannon, portfolio manager at TwentyFour Asset Management, said: “The Bank of England clearly felt compelled to stop the spiral of margin calls but it is hard to keep faith with their claims to return inflation to target. They’ve tried to square the circle by saying they will accelerate gilt sales after a limited time period. That leaves me thinking either the pull-back in gilts is overdone or inflation credibility is further weakened. Ultimately fiscal mistakes cannot be corrected by monetary actions.”

Wall Street stocks set to rise in opening trade, helped by well-received corporate earnings

14:11 , Michael Hunter

New York stock markets looked set to offer global investors some relief from the gloomy conditions on European stock markets, as well-received corporate news helped lift the mood.

Futures trade pointed to opening gains of about 9 points, or 0.2% for the S&P 500, which would send it to 3669.75 points.

Biogen was expected to surge after successful clinical trials in its treatment for Alzheimer’s. Thor Industries, the carmaker, rose in premarket trade after stronger than expected quarterly earnings figures and Netflix gained over 1% on a broker upgrade and upbeat comment on the prospects for the stock.

Insurance stocks hit the bottom of the FTSE 100 as rate expectations get redrawn

13:40 , Michael Hunter

London’s main stock market index stayed under pressure with high street stocks and companies exposed to the outlook for more aggressive hikes UK interest rates making the biggest falls.

That included insurance companies and pension fund providers, who benefit in the long term from rising rates, but often have carefully calibrated positions set around their expectations for monetary policy which may need to be redrawn at short notice, creating a need for cash to close off hedging positions.

Aviva was the biggest faller on the FTSE 100, down over 8% at 375p, a loss of 34p per share. Legal & General was down by almost 9% or 20p to 213p. Prudential fell 3.7% to 880p, a decline of 34p.

Overall, the top tier index shed over 48 points to 6,936.34, a drop of 0.7%.

Big-name high street stocks were also prominent fallers after shop price inflation data set fresh records, led by surging food prices, adding to worries about the economic implications of tighter household budgets. Tesco lost p to 209p, a fall of 3.4%. Sainsbury fell 8p or 4% to 181p.

Bank of England market intervention: ‘monetary U-turn’; ‘better late than never' -- City experts react

12:54 , Michael Hunter

City experts are starting to react to the Bank of England’s dramatic, 11am announcement that it was intervening in UK debt markets to head off what it called a ‘material risk to UK financial stability’ by buying government bonds.

The move immediately brought the returns investors were demanding to lend to the UK down across the range of maturities of gilts, with benchmark 10-year bonds yielding nearer 4% than 5% for the first time in days. Purchases will run from today until October 14.

Here is a round up of some of the thoughts of City commentators.

Antoine Bouvet, senior rates strategist at Dutch bank ING: “Better late than never. If this sounds like a U-turn, that’s because it is. Gilt markets ... anxiously await more detail on the size of the BoE’s intervention. We think purchases should and will last longer than the initial two weeks. This would restore market confidence, and provide cover for investors to return to the market, sowing the seeds for the end of this crisis.

“Nevertheless, a lot still hinges on the Treasury and investors will be looking for a credible plan to get debt under control. Today’s decision from the BoE only buys time.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown: “The move that bank officials have made to step in now, just two days after it indicated it would wait until November, smacks of a bit of panic and also of frustration that the government appears to be digging in its heels, reluctant to perform a political U-turn. Instead, the Bank of England has been forced to pursue a monetary U-turn, an abrupt change of policy as the Bank’s monetary policy committee had been pursuing a policy of selling down the Bank’s bond holdings.”

Mike Owens, global sales trader at Saxo Markets: “This move from the Bank of England won’t stem moves against the UK debt and currency markets on their own. It’s a narrowly defined intervention that hopes to dampen the current shocks. We’re told that the Bank is meeting with the Treasury routinely week-on-week, and so now the focus will swing back to how the government plan to convince the market that their expansionist policy will provide the growth necessary to balance the UK’s finances.”

Bank of England’s emergency debt market intervention: political reaction

12:28 , Michael Hunter

The Bank of England’s dramatic intervention in the debt market means it will buy back billions of pounds of government debt to restore order to the the stressed market.

It came just before 11am and the emergency purchases will start today and run until mid-October.

The Chancellor, Kwasi Kwarteng, has been meeting with banks and financial institutions after the stark market reaction to his unfunded tax cuts, the biggest of their kind in a generation.

You can follow all the headline political reaction in the Standard’s London Politics Live blog.

Bank of England intervention eases gilt yields as it points to ‘material risk to UK financial stability’

11:41 , Michael Hunter

The Bank of England said there “would be a material risk to UK financial stability” if it what it called “dysfunction” in the debt market continued, as its intervention sent gilts yields lower across the durations of government bonds.

After the BoE announced its plans to buy long-dated debt, benchmark 10-year gilt yields headed lower , to 4.034% from 4.49% beforehand.

Two-year gilt yields fell to £4.060% from over 4.5% ahead of the announcement.

The yield on the 30-year bonds at the centre of the BoE’s intervention fell to 4.35%, having been just over 5%.

Bank of England to intervene in UK bond market by buying long-dated gilts

11:18 , Michael Hunter

The Bank of England said it would start buying long-dated government debt on Wednesday in an effort to calm the turmoil in the gilt market that has send yields soaring since Kwasu Kwarteng announced overhauled tax and spending plans.

The move represents an about-turn at the BoE, which has been selling its holdings of gilts which it built up during the bond-buying policies designed to stimulate the economy during the crises during Covid and the financial crisis. It said its annual target to cut bond holdings by £80 billion would remain, but next week’s sales were now postponed.

It is designed to “restore orderly market conditions” according to a statement from the BoE, which also said: “The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury.

“On 28 September, the Bank of England’s Financial Policy Committee noted the risks to UK financial stability from dysfunction in the gilt market. It recommended that action be taken, and welcomed the Bank’s plans for temporary and targeted purchases in the gilt market on financial stability grounds at an urgent pace.

“These purchases will be strictly time limited. They are intended to tackle a specific problem in the long-dated government bond market.”

Auctions will take place from today until October 14.

Supermarkets spooked by food inflation figures: market round up

11:12 , Simon Hunt

Alarm bells rang over some of the London market’s best-known high street names today, with retailers and banks hit hard by fresh inflation worries and the outlook for UK interest rates.

Supermarket chains were spooked by numbers from the British Retail Consortium (BRC) that showed soaring food prices leading shop inflation to new records.

Tesco, the country’s biggest single retailer, fell 6p to 210p, the stock’s lowest price since early 2019. Sainsbury, one of Tesco’s main rivals, lost 7p to 182p, its lowest since 2020. Both companies face strong competition from the German discount chains Aldi and Lidl, who are gaining market share fast as household budgets are squeezed hard.

But the unease was deep enough to hit homegrown discounter B&M. Shares in the 700-outlet chain fell 7p to 302p.

James Hughes, analyst at Scope Markets said: “The BRC numbers mean it is likely that households will be increasingly cautious when it comes to spending in the autumn. It is striking that even the typically resilient supermarkets have taken a pasting on the markets, with food inflation stoking the worries.”

High street banks also stayed under heavy pressure, as City traders continued to expect the Bank of England’s fight against inflation to get even more aggressive.

Lloyds Banking Group — the owner the Halifax and one of the UK’s biggest mortgage lenders which has withdrawn fixed-rate home loans this week — was 1.3p weaker at 42p. NatWest, another major player in the mortgage market, fell 7p to 225p.

Rightmove, the online estate agency and property portal that is often the first step for house hunters, took up residence on the list of the biggest fallers, down 13p to 489p.

Overall, the wave of selling took the FTSE 100 down by 128 points to 6855.75, setting it on course to close under 7,000 points for the second consecutive session. The declines were also broad, with only six constituents making gains, mainly defensive stocks including British American Tobacco, up 15p to 3389p and vaccine maker GSK, up 16p to 1332p.

The FTSE 250, home to a range of domestic UK stocks, slumped by 393 points to 16910.58, taking it back toward its early March lows of around 15200.

JD Wetherspoons, the pub chain and high street favourite, hit the bottom of the mid-cap market, down 47p at 402p.

FCA commits to reducing regulatory burden facing UK businesses as recession looms

10:56 , Simon Hunt

The Financial Conduct Authority says it plans to reduce the regulatory burden facing UK businesses as they deal with the impact of a recession.

The FCA said it would speed up some of its decision-making, particularly when it comes to authorisations, as well as provide more regulatory certainty, becoming a “more outcome-focused regulator”.

“As we move forward in a post-Brexit world, the FCA will support the Government’s ambition, under the Future Regulatory Framework, to ensure that it can tailor rules to suit UK markets, creating a flexible, agile and effective regulatory landscape that can adapt to economic burdens and market change,” the FCA said in a statement.

Shepherd Neame back in black but warned London pubs are falling behind

10:34 , Simon Hunt

Britain’s oldest brewer Shepherd Neame said it was back in the black today after two years of losses but warned sales at the firm’s London pubs had lagged well behind the rest of the country.

The 400-year-old brewer, which makes Spitfire and Bishops Finger beer, posted profits of £7.4 million in the year to June 2022, turning around a £16.4 million loss the previous year, clearing a path to acquire a number of new pubs and eye opportunities for further acquisitions in the months ahead. Sales over the summer to September this year were nearly 10% ahead of last year.

The firm welcomed government support to deal with soaring energy costs but warned the price of a pint was likely to increase further amid a continued rise in supply chain costs.

Neame said footfall in the firm’s London pubs – which include the Savoy Tap on the Strand, The Cheshire Cheese off Fleet Street and Old Doctor Butler’s Head in Moorgate -- was some 30% behind pre-pandemic levels during the year, but that the figure had shrunk to 11% in recent weeks.

Shepherd Neame shares fell 1.4% to 655p. The stock is down 30% since the start of the year.

Banks and high street stocks take toll on FTSE 100 as inflation fears deepen

08:23 , Michael Hunter

London’s main stock market index fell further under the 7000-point mark in opening trade, with shares in high street banks and supermarket chains under pressure after further insight into the extent of the threat posed to the economy by inflation.

The FTSE 100 fell 117 points to 6,868.02 a loss of 1.7%

Figures from the British Retail Consortium showed record price rises in September, led by soaring food costs, which were up by 10.6% as overall annual shop price inflation reached 5.7%.

Some of the biggest names on the high street stood out on the list of fallers. Next, the fashion chain, was down 150p at 5120p. Sainsbury was down 4p at 185p. Tesco lost 4p to 212p. Value chain B&M was 5p weaker at 304p.

After further reports that the redrawn outlook for more aggressive interest rate rises from the Bank of England prompted lenders to pull mortgage deals, banks and housebuilders continued to fall, having led losses over the previous session. Lloyds Banking Group was down 1.5p at 42p, the biggest single loss in percentage terms. Rightmove, the online estate agent chain, fell 18p to 483p. Persimmon, the developer, was down 28p at 1184p.

Boohoo shares tank after profit warning

08:14 , Simon Hunt

Shares in online fashion retailer Boohoo tanked 6.4% in early trading this morning after the company cut its profit forecast and warned sales were on a downward trajectory.

Revenues at the firm fell 10% in the six months to August to £882 million, with a similar decline in sales expected in the next six months, the firm said.

It forecast an earnings margin of between 3% and 5%, down from previous forecasts of between 4% and 7%.

Josh Holmes, Senior Consultant at Retail Economics said: “These results confirm that all is not well at the retailer. There’s no doubt about it, they are navigating through particularly challenging times with the business model under pressure.“Following a pandemic-fuelled boom, many shopper habits have snapped back into place more forcefully than had been expected. Rising returns and weaker demand have collided with spiralling input and operating costs, which has hit profitability hard.

Boohoo shares are now the most shorted in the UK, according to Research Tree. Read more here.

Shop price inflation hits fresh high, says the British Retail Consortium

07:36 , Michael Hunter

Prices in high street shops and supermarkets rose at the fastest rate on record in September, led by the cost of food, according to closely-watched figures from industry body the British Retail Consortium.

The numbers will add to fears at the danger posed to the UK economy by soaring inflation and the outlook for aggressive rate rises from the Bank of England as it struggles to contain rising prices.

The BRC said prices rose by 5.7% in the year to September month, up from August’s reading of 5.1%. Food prices led the trend, up 10.6%, after the war in Ukraine lifted the cost of a range of items, including vegetable oil and fertiliser.

FTSE 100 expected to fall further under 7000 points

07:26 , Michael Hunter

London’s main stock market index was expected to fall further, and the pound was back under $1.07 after the International Monetary Fund called for the government to look again at its tax plans.

The lender of last resort to nations in financial crisis said the “untargeted” cuts, which has roiled UK asset markets since they were unveiled soon Friday, ran the risk of feeding inflation

According to opening calls from IG, the FTSE 100 was looking at a fall of 0.9%, taking it to 6925, with similar losses forecast for continental European stock markets. The pound, which has fought back from record lows at $1.033, was back under pressure today, falling 0.4% on the session to $1.0686.