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Gilts climb again despite Bank intervention as Liz Truss defends Budget

liz truss
liz truss

Government borrowing costs have begun to climb again less than a day after the Bank of England’s £65bn intervention to calm “dysfunction” in the gilt market.

Liz Truss failed to soothe unease among investors after she spoke publicly for the first time since last Friday's mini-Budget, which sent borrowing costs soaring and the pound plunging.

“I have to do what I believe is right for the country and what is going to help move our country forward,” she told BBC local radio on Thursday.

Gilt yields rose by 0.2 percentage points for five and ten year government bonds in the wake of the comments. The rise reversed some of Wednesday’s drop of respectively 0.4 to 0.5 points, after the Bank launched a multi-billion bailout to prevent a Northern Rock-like run on pension funds.

Renewed upward pressure on yields suggests the Bank of England's intervention will provide only temporary relief.

Credit Suisse said in an update sent to clients on Thursday: "Given the decline in credibility of UK institutions, markets are now demanding a high premium to finance UK’s deficit flows, which has led to a much weaker pound and higher UK yields, before the BoE’s intervention yesterday. The UK is facing a confidence problem."

The Government is under pressure to bring forward its fiscal plan, which the Chancellor has promised to deliver alongside his fiscal statement on November 23.

George Buckley, chief European economist at Nomura, said: “We think the Chancellor should announce his formal plans for the fiscal rules, which to placate the markets would almost certainly need to be tighter than simply saying debt/GDP will fall over a longer period than previously envisaged (three years).

“The BoE has created some limited breathing space (12 more business days, to be precise) for the Government to consider its position and put in place a more permanent solution.”

Chief Secretary to the Treasury Chris Philp told the Today programme the fiscal plan would not be brought forward, despite calls from investors and MPs.

Mr Philp rejected criticism of the Budget, including a highly unusual warning from the International Monetary Fund. The fund, which is often described as the world’s lender of last resort, had urged the UK government to “re-evaluate” the tax cuts.

"I saw the IMF's comments,” he said. “I respectfully disagree with them. The response I'm most interested in is the response by British business organisations who represent the British businesses that are going to grow and that are going to create these jobs"