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Bank of England’s Bailey: Chaos from Truss's budget 'gone' but market confidence still fragile

Governor of the Bank of England, Andrew Bailey, during the Bank of England's financial stability report press conference, at the Bank of England, London. Picture date: Tuesday December 13, 2022.
The Bank of England made £3.8bn profit on 'mini-budget' bond sales, governor Andrew Bailey said. Photo: PA/Alamy

The Bank of England’s (BoE) governor has said that the market chaos that led investors to flee from UK assets such as bonds during the Truss leadership is now “gone”.

Investors got rid of UK assets at a frantic pace ⁠— including the pound and government bonds ⁠— putting some pension funds at risk of collapsing and forcing the Bank's intervention.

The panic sparked by then-prime minister Liz Truss’s disastrous budget program set out a series of unfunded tax cuts is “pretty much gone”, BoE governor Andrew Bailey told the treasury select committee.

Mortgage rates in markets have drifted down as a result of that risk premium going away but Bailey warned that the UK is still working to restore its credibility in the markets.

Read more: Seven ways you can pay less tax

“It’s going to take some time too convince people that we’re back to normal,” Bailey told MPs. “International partners will understand that we’re back to where we were, things have restored to normal.”

The Bank bought £19.3bn worth of government debt ⁠— or gilts ⁠— in the wake of Liz Truss and Kwasi Kwarteng's mini-budget in September.

The BoE said the bonds have all been sold, booking a profit of about £3.8bn.

"The profits all go to the Treasury. It's around £3.8bn...The Bank of England does not get to keep that," Bailey said in response to a question from a lawmaker on parliament's Treasury Committee on Monday.

"The profit will be offset against losses stemming from the sales of bonds purchased under the standard quantitative easing plan. “

Andrew Bailey also said that the UK’s proposed changes to insurance sector capital rules such as looser rules for insurers will be a risk to policyholders but not the financial system as a whole.

Read more: Bitcoin price surges 24% as crypto retakes $1tn market cap

"I don't think that it's likely, all things equal, that it's a risk to financial stability, but it is a risk to policyholders," he said.

The BoE governor refused the idea that the central bank had given its okay to the government’s proposals on insurance capital rules ⁠— which it was originally against ⁠— as a concession after Downing Street stepped away from plans to give itself powers to veto decisions by financial regulators.

Bailey said he would not consider that sort of "trade".

Watch: BoE: Inflation ‘below where we thought it would be’