The extent of behind-the-scenes turmoil in the government ahead of September’s mini-budget became more apparent as the Bank of England governor described an almost complete disruption in communications in the days leading up to the announcement. event.
Appearing before the House Economic Affairs Committee, Andrew Bailey said that BankThe Monetary Policy Committee (MPC) made an important decision on interest rates less than 24 hours ago small budget September 23has given little indication of the content of the financial statements.
Mr. Bailey’s comments are significant since the Bank was forced, after this event, intervene in the government bond market After the price of UK long-term bonds plummets (and thus their interest rates go up), this can create a market crash within hours.
Asked by former Bank governor Lord Mervyn King about the level of information the Bank was provided by the Treasury, Mr Bailey said:
“That’s just unknown. It’s not clear what will happen in this statement.”
“Under normal circumstances, we have channels of communication. That didn’t happen in this case.”
He described it as “a most extraordinary process”, adding that part of the problem was the government’s determination not to let the Office of Budget Responsibility (OBR) participate in the event.
“By not involving OBR in the process, that takes away a lot of the substance that we rely on to make the budget, from a forecasting point of view and understanding the measures contained therein,” he said.
“That’s not there. Nothing at all.”
He added that the Bank had not been provided with any details on the measures or details of the scale of the event, which has also caused a severe crisis. fell into the pound.
“The repeal of the top tax rate… is something we certainly didn’t know was going to happen,” he said.
The governor added that while a Treasury Department representative was present at the MPC meeting, “I don’t think Treasury officials had a clear understanding of what was going to happen in the meeting.” [the mini-budget].”
The governor also said that while government bond yields have fallen again after a period of stress, the market “has not returned to normal at this time”.