LONDON -- The pound sank against the dollar early Wednesday after the Bank of England governor confirmed the bank won't extend an emergency debt-buying plan introduced last month to stabilize financial markets.
Andrew Bailey said the program will end on Friday as scheduled. The pound fell by almost 1% to just below $1.10 after Bailey spoke, before rallying slightly. After the government’s September “mini-budget,” the currency hit a record low of $1.03.
“My message to the (pension) funds involved – you’ve got three days left now. You have got to get this done,” he said. “Part of the essence of a financial stability intervention is that it is clearly temporary.”
The central bank stepped in after the British government on Sept. 23 announced plans for 45 billion pounds ($50 billion) in tax cuts without saying how it would pay for them. The announcement spooked financial markets and sent the pound plunging to a record low against the dollar.
The Bank of England intervened to prop up the bond market and stop a wider economic crisis that particularly threatened pension funds.
Analysts say pension funds lobbied the central bank to extend the program by two weeks, but Bailey stuck to the timeline in an appearance at the annual meeting of the Institute of International Finance in Washington.
The market turmoil has caused pain for many Britons — especially prospective homebuyers, who have seen mortgage rates soar on the increased prospect of a big rate hike from the central bank when it meets next month.
It has also put intense political pressure on the Conservative government of Prime Minister Liz Truss, who took office in early September with a promise to boost growth through tax cuts and deregulation.
In an effort to ease concerns, Treasury chief Kwasi Kwarteng said Monday that he would release the government’s detailed fiscal plans on Oct. 31, three weeks earlier than scheduled.
But the government still hasn’t detailed how it will pay for its tax cuts, except to say faster economic growth will increase tax revenue. Economists say deep public spending cuts will be needed. The independent Institute for Fiscal Studies says the government may have to reduce spending by as much as 62 billion pounds a year to achieve its targets for controlling public debt.
In more bad financial news, the Office for National Statistics said Wednesday that Britain’s economy contracted by 0.3% in the quarter in August, with manufacturing and consumer services both recording falls.
“The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole,” said the office’s chief economist, Grant Fitzner.
