A guide to what has gone wrong in the bond market.

The UK government needs to borrow a lot of money to cover what it spends in excess of what it gets from taxes. It pays different interest rates on its borrowing depending on how long it wants to borrow for. Money borrowed for a few months is borrowed at around the Bank rate the Bank of England fixes and publishes, currently 4.5%. To borrow for say ten years the government sells ten year bonds to people, pension funds and insurance companies that hold our savings. These bonds take the money off us for the government to spend. The government promises to repay it in ten years time, offering the lender/saver an guaranteed annual rate of interest. This is currently at 4.3%.

The Bank of England has huge influence over how much the government has to pay in interest. By setting a higher Bank rate it usually drags the longer rates upwards. It can say it wants rates to go higher and that will often send them up. It owns a large quantity of the government bonds which it bought up at very high prices in recent years. It can sell some of these to drive the price of the government bond down which pushes up the interest rate.

By way of simple example if theĀ  Bank owned a 1% government bond with no repayment date the bond would trade at Ā£100 per Ā£100 issued paying Ā£1 in interest every year to holders all the time the Bank wanted long rates at 1%. If the Bank wanted to put long rates up to 2% the value of all those bonds would halve to Ā£50 per Ā£100 saved, so the Ā£1 of interest gave the new buyer 2% on the Ā£50 they spent to buy it from the original holder. The losses are lower the shorter the time to repayment of the bond. A 1% 1 yearĀ  Ā£100 bond would fall by Ā£1 in value to Ā£99Ā  if rates doubled to 2%, so the new buyer would earn the Ā£1 of interest over the year and would be paid back Ā£100 for the Ā£99 he had paid for the bond, giving Ā£1 of gain making Ā£2 in total return.

In 2021 when the Bank of England was wanting to boost inflation and the economy it bought up huge quantities of bonds to keep all rates very low. It allowed the government to borrow ten year money for just 0.2%. Now today it panics about the inflation it has helped create. Last autumn it decided to drive bonds down greatly by announcing a huge sales programme of Ā£80bn a year of sales of bonds just before the mini budget and said it wanted bonds down and rates up. Rate soared to over 4% from the lows of the previous year. The sell off was exaggerated by someĀ  Ā geared pension funds having to sell to raise money to pay for bonds they had bought without the money to pay for them in full.Ā  In recent days prior to the publication of disappointing inflation figures the Bank again said it wanted rates up and was thinking of selling or cancelling more bonds next year following a review. Bonds were falling as a result before the inflation figures which added to the woes of the market. Bonds are back to similar levels to last autumn. There was no extra selling pressure from overcommitted pension funds this time round.

This should worry the Treasury and Bank. This will make it more difficult to pay for government spending going forward and makes a recession more likely. A recession will increase the deficit, the amount government needs to borrow by depressing tax revenues and hiking spending on the unemployed.

Selling the bonds at large losses is what they call Quantitative tightening. The Bank told Parliament it would have little impact on inflation and they were doing it just to reduce the size of their balance sheet as a technical exercise. I think they are wrong about all of that. I think big sales at losses destabilise markets and raise interest rates more than needed. If they are right and these sales are unimportant to their policy why not suspend them to ease market nerves? Holding the bonds until they mature will still bring down the size of the balance sheet in due course and it will spare taxpayers some of the large losses currently running at Ā£12bn a year.

123 Comments

  1. Peter Wood
    May 31, 2023

    “the Bank again said it wanted rates up and was thinking of selling or cancelling more bonds next year following a review. ”
    Now, let’s review. The Bank bought these Gilts, issued by the Treasury, and it, the Bank, is thinking of cancelling these bonds. Really….
    Please explain.

    1. NottinghamLadHimself
      May 31, 2023

      Never mind the bond market.

      It seems that the Tories are considering price controls in food staples as well as energy now.

      Didn’t Stalin have a command economy?

      So why the horror at rent controls?

      1. Roy Grainger
        May 31, 2023

        Because rent controls don’t work as has been amply demonstrated in many places including Berlin most recently, all they do is dramatically reduce the amount of rental property available as the owners sell up to owner/occupiers. Of course leftist Little Englanders have no knowledge or interest in this because it involves drawing lessons from other European countries. See also the NHS.

        1. jerry
          May 31, 2023

          @Roy Grainger; So when rent controls fail to work, what happens to properties removed from the rental sector, do they remain empty, are they (re)occupied by the owners or their kith and kin, are they put up for sale on the open market, and if the latter does a more plentiful supply of properties not help to satisfy the owner-occupier sector (perhaps having had to remain in the rental sector due to a lack of supply even those it mortgage repayments would have been cheaper)?

          “Of course leftist Little Englanders have no knowledge or interest in this because it involves drawing lessons from other European countries.”

          The same can be said of the unthinking hard right Little Englender, who also fails to draw lessons from other European countries, such as the German health service that has far more in common with our NHS than it does not!

          1. Narrow Shoulders
            May 31, 2023

            Jerry the effect of reduced rental property can be seen in the market at present due to “measures” taken by government over the last two years.

            Many more properties for sale in my area at slightly reduced prices but renters priced out or unable to find anywhere. Renters don’t have the capital to purchase.

            Houses Houses everywhere but n’er a room to live.

          2. jerry
            May 31, 2023

            @NS; That doesn’t suggest a broken rental market but a over inflated property value bubble, along with a broken mortgage sector. Given the current high cost of renting, hence the calls for rent controls, many renters could clearly afford to furnish a mortgage if only they could obtain one, more so if property values were less inflated.

            Whilst I have no time for “Rachman” like Landlords, nor even the Rigsby type, as you suggest, recent over zealous regulation is likely causing ‘causal’ landlords to withdraw from the sector.

      2. Cuibono
        May 31, 2023

        All the better to do away with food mā€™dear! ( let the bug fest begin)
        The result will beā€¦empty shelves in the wondrous supermarkets.
        And here we have no small shops to go to any more.
        No small producers/suppliers..all subsumed or shut down by covid/govt.

      3. a-tracy
        May 31, 2023

        Simple, the people considering ‘price controls’ aren’t Tories, nor are the price controls necessary; there is a competitive market in food, and if people shop around and cut expensive brands charging 3x the chocolate price, as an example, than other brands, then they don’t have the inflation that the papers are liking to call a new crisis.

        As for rent controls, what rent do you want a 2-bed home and a 3-bed home to be capped at? Would it be capped at the same level throughout the UK or just London and the SE? People assume all those homes will be sold; I think people will be more inventive than that.

        1. jerry
          May 31, 2023

          @a-tracy; Your logic would suggest most people are not “real Tories” then, you might be right, given the most recent election results and polling! Might I suggest though, most voters are at least lower case conservatives, hence why the Labour party since 2019 have moved back towards the centre right, away from the socialist left -and Reform UK have gained no traction…

          As for your solution with regards food prices, assuming one has the time to ‘shop around’, how do we know the shelf price is the lowest possible, “Price matching” becomes meaningless if the lowest (local) price is 50% higher than it needs to be!

          Then of course there is the little matter of quality, is one comparing like-for-like, that is one reason why many prefer branded goods over own label. Most people do not have the understanding (of the food industry/retained EU regulation), nor data to make such comparisons give such data is commercially confidential. Give the correct remit a Price Commission could compare such data, then publish average/acceptable prices on a range of products (not necessarily brands).

          1. a-tracy
            May 31, 2023

            Jerry, I was talking about the Tory MPs as you well know. The from 2019 Labour Party want to remove inheritance tax allowances, would you call that centre right? They want to increase council taxes and raise property bands – centre right? Appropriating property – centre right?Tell me what centre right pronouncements theyā€™ve made I must have missed them?

            I disagree that it takes no time to shop around on-line, my 76 year old mother manages it but then sheā€™s had to budget her entire life, she buys fresh produce in the main and cooks it herself and doesnā€™t rely on processed food. Younger people with smart phones have supermarket comparison sites on google search. If theyā€™re not working and donā€™t have a phone (unbelievable nowadays) they can access the internet at the free libraries and community centres. Who are you suggesting doesnā€™t have time to shop around? They could go straight to Aldi and Lidl. Anyway you carry on paying more than you need to because youā€™re close minded. For goodness sake jerry we have rules on food quality (some of the reported issues with salmonella recently in chicken was imported rubbish from Poland!).

            Iā€™ll give you an example this week we are told chocolate prices are adding to our inflation woes, yet you can buy 100g of chocolate at Aldi for 49p compared to Dairy Milk at Ā£1.49, Iā€™ll taste test soon and let you know what I think but there have been a couple of taste tests on things like Norpak and they couldnā€™t tell the difference. If I consider something is 50% higher than it needs to buy I buy an alternative product altogether and give it a miss. I buy seasonal veg but I used to work on a market stall so I know how to look for freshness and what is in season its not that difficult the essential ranges are actually very good quality because of the food standards we have in the UK in the main.

          2. jerry
            June 2, 2023

            @a-tracy; None more blind than those who choose not to see…

            “I disagree that it takes no time to shop around on-line”

            Fine if you have the IT skills (and equipment), not everyone does, nor does everyone have the mental capacity to compare weights and prices, and even then you can not truly compare products on line, hence why the UK has distance selling laws that make it easy to return certain unsuitable online products. Knowing the price of everything is not the same as knowing the value of everything.

            “Who are you suggesting doesnā€™t have time to shop around? They could go straight to Aldi and Lidl.

            The small matter of physical location of the stores perhaps, fine if visiting a shopping mall, fine if able bodied, buy your baked beans from one shop and your cornflakes from another; but what if the two shops are a trip across town, assuming there are multiple supermarket in town; what if disabled; what if housebound and reliant on time limited home helps to do the shopping.

            As for price comparison sites, you still appear clueless that they merely compare shelf prices that might have already been gouged by the retail industry (in the same way as supermarket fuel prices always seem to end up matching each other), only a regulator can root out uncompetitive behavior.

          3. a-tracy
            June 4, 2023

            Jerry, my father in law got home delivery from a discount supermarket, and his children helped out. Itā€™s very concerning that you donā€™t think there is any public transport to supermarkets. Then when he became totally incapacitated he got meals on wheels. There you go again insulting people when youā€™re losing an argument

    2. Peter Wood
      May 31, 2023

      Creditor, the Bank, cancelling the bonds issued by the Debtor, the Treasury, is a great way for the Bank to go broke, since the Debtor no longer has to repay the debt. The newly ‘printed money’ stays out in the wild.
      This is real ‘magic money tree’ madness, no wonder we’re in such a mess.
      Can I issue my bonds to the BoE and get those cancelled too…

    3. Denis+Cooper
      May 31, 2023

      The Bank owns the bond, and as the prospective recipient of the future interest and capital repayments it is free to forgive the Treasury those promised repayments. Whether any formal mechanism exists for the current owner of a bond to do that, in effect cancelling it, is another matter. I suppose the Bank could sell it back for a penny? But if it did that there would be less Bank profit for the Treasury to share, and it would have to make up the Bank’s loss … this is why QE was described by some as a “money go round”:

      http://johnredwoodsdiary.com/2009/04/03/the-money-go-round/

      I see there one of my comments which started:

      “If I was a devious and unscrupulous politician in government, I would quietly arrange for the bonds to be cancelled … Cancelling all the gilts acquired by the Bank would slice a chunk of the national debt, at a stroke.”

      But that ignored the indemnity that the Treasury had given the Bank.

  2. Mark B
    May 31, 2023

    Good morning.

    The UK government needs to borrow a lot of money to cover what it spends in excess of what it gets from taxes.

    I would like my fellow readers to reread the above and let it sink in for a moment or two and ask yourselves a very simple question :

    Q If you were running the economy, what would you do in such a circumstance ?

    1. Lifelogic
      May 31, 2023

      Taxes at absurdly high levels yet the government still spends (largely wastes) more than it raises. The solution is to stop Sunak amd Huntā€™s vast government waste, incentivise people to work, cut the size of the largely parasitic state sector, ditch net zero, make the UK competitive again, stop the wars on small business, landlords, the self employed, car users, stop blocking the roads, relax planning, control immigration levels and qualityā€¦

      I see that the WHO have now admitted the Covid Vaccines also cause an auto immune reaction that causes Multiple Sclerosis this on top of all the many cardio vascular and blood clot issues. Why on earth did the government coerce these experimental ā€œvaccinesā€ even into the young & children who clearly never needed them? Even into people who had already had Covid without any issue.

      1. Cuibono
        May 31, 2023

        I think it is a well known socialist trick.
        It is called The Cloward-Piven Strategy.
        Overburden the State and bring the country down. ( Then impose communism).
        I heard a Labour politician boasting about using mass immigration to do this.

        To the best of my knowledge. Not a lieā€¦.

        1. Sharon
          May 31, 2023

          Cuibino

          That idea would certainly fit in with my historical research. The arrival of woke etc. How to destroy a country from withinā€¦ that weā€™ve seen, woke, trans, trashing of religion, teaching of inappropriate sex lessons in schools, people being separated and isolated by lockdown and working from home, being encouraged to ā€˜don in non complianceā€™ of Covid restrictions. Reliance on the state from job loss. Being coerced into actions – the vaccine. Punitive taxation, high energy billsā€¦.government action the opposite of logic. Yep, could well be right!

          1. Cuibono
            May 31, 2023

            In 1966 American sociologists Richard Cloward and Frances Fox Piven formulated a political strategy which was named The Cloward-Piven Strategy.

            As far as I can see the govt. has ticked all the boxes over the last few years.

        2. Clough
          May 31, 2023

          It isn’t just about imposing communism. I see the Tory Bow Group chairman has just said: ā€œThe Conservative Party have broken their now 13-year-old promise to reduce immigration to the tens of thousands because they fear global corporates more than their betrayed voters.” I agree with him, but I can’t believe that global corporate businesses are communist, seeking to expropriate the rich for the benefit of the proletariat. The dllemma we have is that both the internationalist Left and the corporate plutocracy want mass migration, for their own ends.

          1. Cuibono
            May 31, 2023

            Yes but someone somewhere wants this country ( the whole of Europe?) overwhelmed and on its knees. Deindustrialised and begging for grubs?
            Aided and abetted by infiltration at the highest levels.
            Now who would that benefit?
            Who would want to impose communism on us?

          2. Lifelogic
            May 31, 2023

            Fear corporates or are simply bought by them? With party contributions, offers of jobs and paid ā€œconsultanciesā€. I see Labour are getting loads of money from Just Stop Oil supporters!

      2. Peter Gardner
        May 31, 2023

        “Why on earth did the government coerce these experimental ā€œvaccinesā€ ?
        Because people like you would not otherwise have taken them.

        1. Hat man
          May 31, 2023

          And perhaps also, Peter, because some people (like you?) were happy to see the government make war on freedom of personal choice as regards a medical intervention.

        2. David+L
          May 31, 2023

          When I had the opportunity to ask my cardiologist whether I should have the booster jab last year he replied “Firstly, I have to say that nowhere on this planet is there such a thing as a safe vaccine. All vaccines carry risks and you have to balance the risks of not having it. With Covid there seems to be certain cardiac issues, myocarditis, pericarditis, that may be linked to the MRNA jab. But having covid can damage various organs. It is up to you to decide, it is your body.” So I’ve decided to let my own immune system protect me, to eat sensibly, to exercise and to get the sun on as much bare skin as is both sensible and legal! It was so refreshing to have confirmed that the government instructions, hysterical headlines and self-appointed covid “police” can all be ignored. And as more evidence emerges it seems the anti-vaxx conspiracy theorists may have a point.

          1. Ashley
            May 31, 2023

            I know three people who developed heart arrhythmias shortly after taking the vaccines. This just in the few people I know!

      3. Bloke
        May 31, 2023

        This inept Govt is intent on extremely wasteful spending. The Bank is only 1907 feet from Moorgate and speeding down the tubes. The driver ignores the brakes and even the dead manā€™s handle is depressed. Those responsible canā€™t hide in the dark.

      4. BOF
        May 31, 2023

        +1 LL
        Taxes are so high that many are discouraged from working!

        Neurological diseases are common side effects of the gene therapy jabs. Guillain-Barre syndrome is another.

      5. turboterrier
        May 31, 2023

        LL
        It was and always has been about the waste of government and its civil and public services.
        You will be lucky to find a 100 MPs who even think about it never mind actually doing something.

      6. Lifelogic
        May 31, 2023

        ā€œDevolution has been a disaster, yet Labour still hungers for moreā€

        Tom Harris in the Telegraph today.

        Blair & Brownā€™s Botched devolution has indeed been a total disaster particularly for Scotland and Wales but also for England who pick up the bills. Done by them to try to benefit Labour politically but this backfired too as the SNP took over. Did the Blair/Brown era give us anything remotely positive? But then did the Cameron, May, Boris Sunak eras? May gave us opt out organ donation and Boris a rather botched Brexit of sorts I suppose not much else other than ever higher taxes, far more debt, high inflation, green crap, expensive energy, thousands killed with dangerous vaccines, pointless lockdowns and hugely declining living standards.

      7. glen cullen
        May 31, 2023

        HS2 still continues at hundreds of billions

    2. Lifelogic
      May 31, 2023

      So Chris Whitty says:- The marketing and the illegal sales of vapes to children is completely unacceptable and I will do everything in my power to end this practice for good.ā€ Prof Whitty said: ā€œWhilst vaping can be an effective quitting tool for smokers, it is important that non-smokers are not encouraged to start vaping.

      I tend to agree Sir Chris but any comment on the coercing of net harm Covid vaccines (especially into children and the young who never needed them)? Was that completely unacceptable and gross negligence by the regulators they had more than sufficient data to show the dangers at the time and as they were rolled out?

      1. Cuibono
        May 31, 2023

        Funny to think too that the world of medicine is tying itself in knots trying to refute the idea that nicotine adversely affects covid.
        Yet nicotine was and still is used in agriculture to kill bugs and pathogens.
        And then thereā€™s ivermectin of courseā€¦

        They should concentrate on knife culture and govt. approved confidence crashing strategies if they are even remotely truly bothered about kidsā€™ health.

        1. Lifelogic
          May 31, 2023

          Well if you were a respiratory virus would you like to live and breed in nice health human lungs or ones full of tar and nicotine?

          1. Cuibono
            May 31, 2023

            Lol
            If I were a virus ( which I may well be)
            From poisonous nicotine I would flee!
            An anti-inflammatory for the alveoli! (?)

            NBā€¦I do NOT smoke and never have.
            I always hated sitting in pubs and restaurants with smoke being blown over me.
            So I do not need converting or counselling.

    3. Cheshire+Girl
      May 31, 2023

      I wont attempt to answer that question, as I donā€™t know enough about finance. However my view is, the Government wouldn’t ā€˜needā€™ to borrow so much, if it didn’t give so much of taxpayers money away, Ie: Ukraine, Foreign Aid etc.

      Every month, it is another few billion. As a taxpayer, at 83, I am thoroughly fed up with them. I had hoped for less of this when Rishi Sunak became Prime Minister, but I was disappointed.

      1. Lifelogic
        May 31, 2023

        The government waste, inefficiency and corruption is everywhere you care to look. But the government clearly had no intention of even trying to address this waste. After all they have given up on the next election so best to leave as much of a mess for Labour/SNP/Libdims as possible they seem to think. The have quadrupled the national debt yet delivered nothing of any real value for this money! Though I did have one of Rishi’s absurd “eat out to help out” restaurant meals with my son.

    4. Ian+wragg
      May 31, 2023

      Don’t be ridiculous. The government can never cut spending it like an alcoholic or drug addiction. It can’t help itself and like the aforementioned it will ,Rob, steal and lie to protect its habit.

    5. Berkshire Alan
      May 31, 2023

      Mark B
      Perhaps the system in the USA is more transparent, and as I understand it, there is a limit on government borrowing each year, and if the Government want to go above that figure, then they have to get a vote through their two houses to increase it, inevitably of course it gets through, but at least it concentrates everyone’s mind for a short period on the financial management, spending, and borrowing situation.
      Perhaps we should have a similar approach here, but with the proviso that if you spend up to the budget, then you have to raise the extra needed with taxation rather than borrowing (called living within your means) at least that would be more honest, and the population could then see what the politicians have bought upon themselves with their decisions and policies.
      Too many tax rises and that Party would have problems in getting elected again.
      We need simple and clear controls on Government spending (in our name and on our behalf), which at the moment is completely out of control, and without the populations permission, after all most of us have to live within our own financial means as a matter of course, because we do not have access to unlimited borrowing in someone else’s name, thus we make choices and prioritise our expenditure accordingly.

    6. a-tracy
      May 31, 2023

      Cut my cloth.

  3. Javelin
    May 31, 2023

    I work in the bond markets and my goto numbers are

    1) cost of mass migration
    2) cost of Government pensions
    3) cost of green energy

    All of these will drive real interest rates.

    (1) is based on the Government unwilling to remove migrants because migrants run Government departments (2) based on civil servants destroying the Government if they donā€™t get huge pensions (3) based on riots of people canā€™t eat or heat their homes.

    1. Mark B
      May 31, 2023

      (2) Is quite easy to deal with – Just make the top third of the CS redundant.

      1. turboterrier
        May 31, 2023

        Mark B
        Only a third?
        Then there all the Quangos
        Similar to a car advert do it the motorway.
        Do it the American way.
        Everybody’s names into the drum 1 in 5 of being lucky and retained.
        That way the higher echelon also get sorted out. Tough but fair.
        Those who remain new contracts and conditions take it or leave it.

      2. a-tracy
        May 31, 2023

        One after another, they will show us they are 20% overstaffed, like that LibDem Council, when they tell us they can effectively do five days of work and pay in four days! No one I work with could do that.

    2. Lifelogic
      May 31, 2023

      Indeed a very elderly spinster relative of mine has Ā£2,600 disposable income from her schools inspector pension each month. Meanwhile a junior doctor aged 25, working about 48 hours a week has negative disposable income to live on after rent for a basic room, commuting cost, interest on student debts, council tax… so simply insufficient to live on in central London. Even a 35% salary increase that they are asking for (after tax & NI) would still be less than is needed to live on and that is just renting a room not even a one bed flat. Meanwhile his similarly aged friends in Law, Banking and similar are paid more than three times as much and have been working for three years already.

  4. Donna
    May 31, 2023

    None of this is happening because the people running the circus are incompetent. The WEF and the people it has embedded in the British Establishment and Government are deliberately wrecking the economy.

    You can’t “Build Back Better” unless you have first destroyed everything…..as Lenin demonstrated in 1917. We are still in the destructive phase.

    Of course, what they consider will be “Better” will not actually be better for you and me. But it will certainly be better for them since they intend that you will own nothing ….. and they will own everything, including you.

    1. Christine
      May 31, 2023

      +1 this is all planned and most voters are oblivious to what’s coming. If people think Labour will be any better they are delusional. If the main parties aren’t ousted at the next general election then the UK will have fallen without a shot being fired. Sir John can write about the policy failings of his government as much as he likes but he needs to understand that it is their plan to destroy the British economy and steal the wealth of the middle classes. The media is complicit in this plan. The Express had 13 articles on a low-level celebrity but not a peep about the continued destruction of our country by those elected to protect us. Long live GBNews and the Reform Party.

    2. Original Richard
      May 31, 2023

      Donna :

      Agreed

  5. Lifelogic
    May 31, 2023

    Some daft female Labour MP seems to think Women can now have penises since they passed the Equalities Act 2010.

    Powerful things these UK laws if they can even change biology but why stop at biology? How about some to adjustments to the laws of physics. A law that demanded car batteries that weight only 1KG should cost no more than Ā£100, should need almost no fossil fuels to manufacture them, store enough energy to take a car 1000 miles on a single charge and be able to be recharged in three minutes. Thus solving all the EV car problem. (the current figures are more like 400KG, Ā£13,000, 200 miles and several hours and they need loads of fossil fuels to mine & manufacture them).

    Also that no one should ever get cancer and that the wind should blow 100% of the time near wind farms but never too strongly for them.

    1. Richard1
      May 31, 2023

      It would be helpful also if the sun would shine at night, or at least that there shouldnā€™t be clouds or birds doing droppings over solar parks, as in the U.K. they can only achieve c. 15% efficiency and do take rather a lot of space.

      1. Berkshire Alan
        May 31, 2023

        Richard 1.
        A point I have made before, why put solar panels that need to be maintained to work efficiently on a roof without access !

    2. Original Richard
      May 31, 2023

      LL :

      Youā€™re right. In fact legislating for net zero CO2 emissions by 2050 (or perhaps now 2040 as demanded by the UN) with decarbonisation of the electricity supply by 2030 (Labour policy) is attempting to change the laws of physics. And the BBC will be telling us that our Parliament has successfully legislated a change in the laws of physics whilst we sit in the cold and dark waiting for our smart meter to provide some electricity.

  6. DOM
    May 31, 2023

    John Redwood demands the removal of WEF placeman Andrew Bailey

    1. majorfrustration
      May 31, 2023

      Seems a good place to start.

    2. Lifelogic
      May 31, 2023

      Well Sunak what the Chancellor at the time of all this currency debasement, the QE money printing vast borrowing & vast government waste.

    3. Bloke
      May 31, 2023

      ‘Placeman’ is a fitting description, DOM.

      1. glen cullen
        May 31, 2023

        ‘Manchurian Candidate’

    4. glen cullen
      May 31, 2023

      Not SirJ but the whole cabinet

  7. Lynn Atkinson
    May 31, 2023

    So the BOE donā€™t understand the Bond Market any more than they understand Monetarism. Itā€™s either that or they are anarchists destroying our country.

    1. Ashley
      May 31, 2023

      +1

  8. majorfrustration
    May 31, 2023

    Seems a good place to start.

  9. Mick
    May 31, 2023

    The UK government needs to borrow a lot of money to cover what it spends in excess of what it gets from taxes.
    Iā€™ll tell you how the government can save a fortune is by sacking the civil servants who refuse to carry out government
    Civil service and local government workers are rewarded with Britain’s most gilded pension schemes, receiving as much as Ā£10.63 and Ā£9.24 respectively in pension benefits for every Ā£1 they save at the start of their careers.So sack them thereby saving the tax payer a fortune

    1. Mick
      May 31, 2023

      Should have checked my post
      Iā€™ll tell you how the government can save a fortune is by sacking the civil servants who refuse to carry out government policy

      1. formula57
        May 31, 2023

        @ Mick – and Ministers who refuse carry out government policy too, yes?

      2. Lynn Atkinson
        May 31, 2023

        We would find that that was a ā€˜racistā€™ action.

  10. Sakara Gold
    May 31, 2023

    Central banks remain very keen on boosting their gold reserves, with 24% saying they plan to buy more precious metal in the next 12 months, according to the World Gold Council’s (WGC) 2023 Central Bank Gold Reserves Survey.

    Financial market concerns, planned purchases of domestic gold production, and portfolio rebalancing are driving the additional buying. Iraq purchased 2.5 tons of gold last Thursday, increasing its total gold reserves to 132.73 tons for example. Russia is selling gold into the Midde East market to pay for Iran drones and artillery shells.

    Whilst Sterling still has some value the BoE should be using the proceeds of gilt sales to buy good delivery gold bars on the open market.

    1. Mark
      May 31, 2023

      Sell for $200 – the Brown bottom of market sales – and buy for $2,000. Sounds like a plan. Even worse than the BoE QT sales.

  11. Jude
    May 31, 2023

    The answer seems to be get rid of Bailey & get a financial expert into the job. To ensure BoE is run properly!
    Many moaned about Carney but I always thought he was prudent.
    Who actually selects these people?

    1. Clough
      May 31, 2023

      Who selected Bailey, Jude? Good question. We only know that he was appointed in December 2019 by the then Chancellor of the Exchequer, Sajid Javid, with the approval of Prime Minister Boris Johnson. It does make you wonder who else was on the shortlist!

  12. Narrow Shoulders
    May 31, 2023

    Universal Credit increased (again after inflation matching rises in April. )If the job you are doing doe snot cover the costs involved in being at the job then you should not be doing that job.

    If you need subsidy to look after your kids while you work then you should not be working. See creches appear at workplaces quite quickly if the taxpayer stops funding parents working.

    1. Christine
      May 31, 2023

      One of the biggest problems is the 16-hour rule whereby it’s hardly worth working more hours because of the loss of benefit payments. I always worked full time whilst bringing up my children. It isn’t easy but those on benefits shouldn’t be rewarded for a lifestyle choice. This country has allowed a culture of the lazy and self-entitled at the expense of hard-working taxpayers. The burden on the state increases year on year and it doesn’t help that the government imports millions of people who can’t pay their way.

    2. Sir+Joe+Soap
      May 31, 2023

      The effective costs are different depending on whether or not you have kids which need minding is the problem. Government policy right or wrong seems to be to create 2 jobs -for parent and child minder, in place of zero. It also creates 2 revenue sources in place of zero.

      1. Narrow Shoulders
        May 31, 2023

        Better to ask them to dig holes don’t you think?

  13. Ian B
    May 31, 2023

    @johnredwood – Government Ministersā€™ popularity with Conservatives plunges in latest poll. Thatā€™s what happens when they adopt failed socialist policies, giving up on freedom, free enterprise and lower taxes.

    What a mess this shower is creating, even the BoE failings are 100% to be laid at this Conservative Governments door. They refuse to manage, but seek refuge in a ssounbites of a failed Socialist agenda.

    It is the Conservative Party with its reward of a massive election victory has failed those that elected them. It is the Conservative Party that has forced a Socialist Government on us under false pretenses ā€˜vote Conservativeā€™ get a Conservative Government ā€“ was an out and out con by the Conservative Party.

    So in essence Government Ministers popularity is in line with their refusal to take up Conservative Polices. The dumb actions of the BoE again is this Conservative Government refusing to ā€˜manageā€™

    There is should be no let up the Conservative Party forced these people on us.

  14. Ralph Corderoy
    May 31, 2023

    A corporate-accounting question: If a company has a 10-year 1% Ā£100 gilt and the rate on new bonds moves to 2% then, as Sir John said, the value of the company’s gilt is Ā£50 on the open market *if it chose to sell*.ā€‚But it can still keep the gilt until maturity and collect the Ā£100.ā€‚Which of those two values, Ā£50 or Ā£100, is used in the company’s accounts to show the gilt’s value?ā€‚Is it Ā£50 if the gilt is considered some kind of readily sellable ‘cash’ asset?ā€‚Or Ā£100 if the accounts bucket it as unsellable before maturity?

    I assume Ā£50 and this is why pensions with liability-driven investments, with their gearing, came unstuck.ā€‚But it seems a bit unfair if the company never has any intention of selling.

    1. formula57
      May 31, 2023

      @ Ralph Corderoy – There are “Held-to-maturity investments” and accounting for them would approximate to cost as you describe. In fact such assets are amortised applying the effective interest rate method, which rate is (per International Accounting Standard 39) “the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or liability”. Assets not classified as held-to-maturity are typically accounted for at market value.

      The U.S.A. recognized in the aftermath of the 2008 financial crisis that the accounts of financial institutions would show alarming write-downs in asset values if market values were widely applied (as was required at the time) so it suspended the rule, allowing use instead of historical cost. Accordingly, the otherwise insolvent appeared more solvent than they were. Talk of restoring the rule is ever present but the world is still too dangerous to permit it with any comfort.

  15. Walt
    May 31, 2023

    Sir John. If I correctly read para 4 of your post today, the Bank of England caused the rate increase which destabilized pension funds that had engaged in so-called Liability Driven Investment. So, why was it blamed on Prime Minister Truss and her Chancellor and who is responsible for blaming her and not the Bank?

    1. Cuibono
      May 31, 2023

      I really donā€™t know but a wild guess might be that she actually wanted to sort out the economy annd the country and she is not a globalist and she was ELECTED.
      Yesā€¦.elected as per democracy.
      Not a coup!

      1. Berkshire Alan
        May 31, 2023

        Culbno

        Sadly she could not explain and/or sell her plan with any detail or timescale before rushing to announce it.
        Thus it gave the opportunity for the Bank of England to act rapidly to cover its own mistakes, it spooked the market, and allowed many others to criticise what appeared to be a reasonable policy.
        If only she and the Chancellor at the time had explained the policy in full, and in much more detail, with a suggested timescale and how it was all going to be paid for, they may both have still been in power today.
        Blaire had the charisma for a number of years (until Iraq) to make Policy by soundbites without detail, afraid Truss did not have that gift.

        1. a-tracy
          May 31, 2023

          Alan, she should have made John Redwood Chancellor; he is long enough in the tooth not to have made Kwarsi’s announcements on the hoof. Kwarsi could have worked with him to learn and grow into the role, but as she chose an inexperienced chancellor then more fool her.

          1. Lynn Atkinson
            May 31, 2023

            And, critically, Sir John would have announced spending cuts to pay for the reduced taxation. The panic set in, quite rightly, when Truss herself announced at the Despatch Box that ā€˜she would not cut spendingā€™. Financially illiterate! Being a little bit right is not enough.
            Truss is also desperately dangerous, xenophobic and warlike against Christian Russia and China! Having armed the criminal Ukraine the U.K. is now a ā€˜legitimate targetā€™ for Russia. Taking on China is madness.
            Unless these dangerous, xenophobic panic stricken fools reign themselves in, we will see what real trouble looks like.

        2. Cuibono
          May 31, 2023

          Yes.
          All a great shame.

      2. glen cullen
        May 31, 2023

        Spot on Cuibono ….it appears that not many MPs are concerned by the lack of democracy …so long as you have a cushy job

  16. Richard1
    May 31, 2023

    It seems there is a perception that admitting any mistake is politically catastrophic. Thus Rishi and Hunt have persevered with the 25% Corp tax although almost everyone with any knowledge, training or understanding in the field has made clear it is likely to raise nothing and perhaps result in a reduction in receipts, whilst giving a terrible signal. Ministers and officials continue to insist that the lockdowns were the right policy. The left not only agrees but says if only lockdown had happened a few days earlier there would have been a much better outcome. It becomes ever plainer what absolute nonsense this is. And the Bank of England cannot admit that its 2021 QE was an error which created inflation. So they have to press on with whatā€™s obviously a bad policy because they canā€™t admit an error.

    There are many examples and not only in the U.K. in Norway a leftist govt has imposed a wealth tax which they expected would raise $150m. But 25% of people worth > Ā£100m have now left Norway, as was completely predictable, and the latest estimate is that far from raising money the tax is costing nearly $500m pa (multiply by 12x to get equivalent numbers for the U.K.).

    So it is with statist blobs the world over.

  17. James1
    May 31, 2023

    Why are the numpties at the BoE incurring taxpayers in losses currently running at Ā£12bn a year? It’s because they are stupid. Sorry to use the word stupid, but there isn’t another word that covers their asinine activities.

    1. Lynn Atkinson
      May 31, 2023

      No, they are incurring the loads because they donā€™t pay, unlike the Fed. We need to change our contract with the BOE.

  18. Denis+Cooper
    May 31, 2023

    I will just repeat that all these decisions are in line with the ‘instructions’ of the Monetary Policy Committee:

    http://johnredwoodsdiary.com/2023/05/27/the-bank-and-recession/#comment-1390286

    Leading to this letter from the Governor to the Chancellor:

    https://www.bankofengland.co.uk/-/media/boe/files/letter/2023/governor-apf-letter-april-2023.pdf

    “As you are aware, the Bank currently holds a stock of high quality assets within the Asset Purchase Facility (APF), arising from activities in support of its statutory objectives. This comprises a portfolio of UK government bonds (gilts) and sterling non-financial investment-grade corporate bonds held for monetary policy purposes, which is being reduced in line with the instructions of the Monetary Policy Committee (MPC).”

    “In accordance with our longstanding agreement, the scale, pace and nature of APF unwind is chosen solely to meet the MPCā€™s policy objectives. Subject to those policy objectives, the Bankā€™s operations are governed, designed and risk managed with the aim of minimising cost and risk.”

  19. glen cullen
    May 31, 2023

    With our taxes the highest in history, with abundant business windfall tax ā€¦.why the need to barrow money
    Thereā€™s an argument for barrowing when money is cheap and to reduce taxation in the short-medium term ā€¦.but what I see is just incompetent fiscal & monetary madness

  20. agricola
    May 31, 2023

    I will not comment because I am no way qualified , but thank you for the information.

    The growing question of the day, once we get past the who knew what in ITV, is Artificial Intelligence (AI). Like all innovation, think Longbow, TNT, and Atomic Power, there is a positive and a negative side. It to date has been down to man to choose which side he decides to use. I suspect AI will be the same or is there a danger that AI will make that choice. Could it be programmed to have an inbuilt set of ethics that were mandatary in its behaviour, unlike man who has the choice to get it wrong. Lastly, these AI creations are I assume dependent on a source of power. So when they start to go wrong, can we not just flick a switch, putting an end to their deviousness. Ethicless and in control of the power switch I can imagine the danger in AI.

    1. glen cullen
      May 31, 2023

      Artificial Intelligence (AI) has yet to be realised, what the media and politicians are currently talking about is some clever programming associated with chip technology and easy to use computer adaptation
      Artificial Intelligence (AI) itself is generations away

      1. glen cullen
        May 31, 2023

        So it would be a waste of government time to regulate something that doesnā€™t yet exist

    2. IanT
      May 31, 2023

      Arthur C Clarke thought about this many years ago….

      “An AI may not injure a human being or, through inaction, allow a human being to come to harm. An AI must obey the orders given it by human beings, except where such orders would conflict with the First Law. An AI must protect its own existence as long as such protection does not conflict with the First or Second Law”

      Of course I’ve substituted “AI” for “Robot” and it’s not at all clear how this would be implemented, or exactly how an AI might define “Harm” for instance (it might decide to lock us all up to protect us). I’m a tad worried about the third law too, it might need some more work…..

  21. James1
    May 31, 2023

    So some civil servants are threatening to strike rather than implement the Rwanda policy. If they do strike they should be given 48 hours to return to work or be summarily terminated. Worked for Reagan with the air traffic controllers who at the time thought themselves to be all-powerful and untouchable.

    1. glen cullen
      May 31, 2023

      The BoE is just like the Civil Service ā€¦.if they donā€™t like government policy they just ignore it !

      1. ukretired123
        May 31, 2023

        Spending or rather wasting other people’s money is the USP of the Labour Party and those in key positions like Bank of England, the Civil Service, NHS, MOD and many other unaccountable government departments and agencies too numerous to list here.

    2. Lynn Atkinson
      May 31, 2023

      Maybe by thwarting the government striking civil servants should be repatriated too – special flights?

  22. Cuibono
    May 31, 2023

    Letā€™s hope that the tories donā€™t rush to adopt Labourā€™s latest policy utterance.
    Compulsory purchase of farmland and green belt ( at arable prices) to building houses for our unnecessarily vastly increased population.
    ā€œBack the Builders Not Blockersā€

    1. Sir+Joe+Soap
      May 31, 2023

      As a precursor to compulsory purchase of houses for “first time buyers” aka incomers.

      1. Cuibono
        May 31, 2023

        +many

  23. Bert+Young
    May 31, 2023

    The BofE have got it wrong for some time and it must be held to account . Drastic change is required and the Government must take charge ; whether the skill and initiative exists for this action is another question . I despair .

    1. glen cullen
      May 31, 2023

      The treasury select committee have failed in its scrutiny

      1. Lynn Atkinson
        May 31, 2023

        The Select Committee should be given the power to sack the Governor.

  24. Ian B
    May 31, 2023

    Sir John
    ā€˜what has gone wrong in the bond marketā€™

    A good question, well answered. But surely the real Question and root cause of all the UKā€™s ills it should read ā€˜what has gone wrong with Governmentā€™ – it refuses to manage, instead it meanders off on weird sound bite inducing publicity stunts. Today we have the privately operated and independent Railway Companies with their staff on strike, it should be their(the Companies) problem, as it is their management of this situation that allows them to make money. Yet according to the Media this Conservative Government is negotiating directly with the Unions over pay. So are the Railway Companies Independent? Then it begs the question why is it this same Conservative Government is unable, or more correctly refusing to ā€˜manageā€™ the collective ā€˜Blobā€™ and BoE with the same amount of ā€˜Gustoā€™? Could it be that they have been told to keep their noses out, or they will be removed from office.

    The Conservative Party have a lot to answer for ā€“ they created this problem that we are all paying for.

    1. James1
      May 31, 2023

      O/t, it’s going to be interesting, to see what happens with Lady Hallett’s demand for sight of relevant documents. I suspect that if the average man/woman/transgender person in the street or on the so-called Clapham omnibus were to be asked if the documents should be handed over, every one of them would say yes, and insist that the Covid enquiry that is being conducted should get to the unvarnished truth. Irrespective of how many faces are lost or reputations further shredded.

      1. Mark
        May 31, 2023

        But by focusing on Boris the enquiry will succeed in being a circus distracting any attention from those who arguably should be far more subject to investigation. I read Boris as a weakened blade of kelp, bending with the currents around him in the aftermath of his own illness, which greatly affected his outlook and malleability on issues such as lockdowns and vaccine rollouts. I would not expect him to be an expert in vaccines, but he should have had some understanding of the economic damage that was being done. But clearly there were no red team voices allowed to raise questions and expect answers in a proper debate. We need answers on that before we disappear down the net zero rabbit hole.

  25. Mark+Thomas
    May 31, 2023

    Sir John,
    Regarding your fourth paragraph, I find the BoE’s timing of these announcements curious. Firstly just before the mini budget last autumn, and now just before the release of the inflation figures. Leftists have since been loudly claiming that Liz Truss nearly destroyed the economy, yet they never discuss the causes of something that never happened. Now with the timing of the latest inflation figures a pattern seems to be emerging. One could be forgiven for thinking that this is all part of a deliberate plan to undermine the government.

  26. BMargaret
    May 31, 2023

    Thanks for the explanation.I will need to read it several times before I get the all round movement.At present I only partially understand , but to what I grasp it seems that the government get away with debt which the citizen would have his/her life ruined for.

  27. Derek
    May 31, 2023

    The latest BoE policy to sell off Bonds mirrors the catastrophe caused by Mr Gordon Brown when he announced the planned sale of British gold and before selling it. Even as a layman I could see the lunacy of that action.
    However, as a mortgage holder holder I could see the lunacy of relentless QE being pursued at every opportunity. Although it drove down interest rates initially, the inevitable outcome was clear to see.
    Micro interest rates drive up asset values as money becomes too cheap and too plentiful. Therefore there was much borrowing against a shortage of products to buy. Too much money chasing too few products certainly creates inflation and that is exactly where we were. All thanks to the BoE, simply for not ‘doing the maths’.
    The serious problem of outstanding debt due to overindulgence of QE has not yet reached tsunami levels but it certainly will. With Total Global debt at $300T or 349% of Global GDP as of 12/22. So it’s not just the UK!
    Interestingly, SJ, you state that the Bank announced a Bond sale programme of Ā£80B per year PRIOR to the Truss mini budget, thus causing a rise in Gilt yields . “Common” knowledge suggested that it was the mini-budget that caused the problems with gilts but I can now see Ms Truss as the scapegoat for mess started by the BoE.
    We, from the back streets of Britain, should be justifiably concerned of where our country and our economy is heading now.

  28. Sir+Joe+Soap
    May 31, 2023

    Personally I think you’re shovelling with the wrong end of the spade. The bonds should never have been bought at high prices in the first place. Then this sell or keep issue wouldn’t be an issue

    1. Lynn Atkinson
      May 31, 2023

      They is the whole point that Sir John makes all the time, interest rates should not have been held so low – therefore the bonds would have been created at a lower price.

  29. John McDonald
    May 31, 2023

    Not to worry the Government has declared war on Russia. This should fix the economy and all the other incompetence of our Government and Politicians for good.

    Reply No the government has not declared war. The UK and NATO rightly do not let Ukraine use weapons we supply for any attacks on Russian territory.

    1. Lynn Atkinson
      May 31, 2023

      Unfortunately Ukraine are not obeying orders, all attacks on Russian territory are carried out with British and EU armaments. The Ukrainians have nothing else. Claiming that ā€˜RUSSIA IS BOMBING ITSELFā€™ as the Ukrainian Minister did yesterday, does not wash. British depleted uranium missiles are contaminating Ukrainian and Russian (Donbas) soil.
      Col Douglas McGregor phd (US) says Bakhmut was ā€˜the greatest trap ever set in military historyā€™, 50,000 Ukrainians slaughtered in that hopeless cause. I see film of British and Irish soldiers – sometimes filmed by themselves, they are mercenaries encouraged by Liz Truss. They have no protection from the Geneva Convention.
      Russia has won but we will not recognize that until the last Ukrainian is dead and there is no alternative with which to delude ourselves.
      Cruel!

      Reply I read Ukraine are making their own drones

      1. Derek
        June 1, 2023

        Russia has won? Not according to their current position in Ukraine. Rather a negative comment from you based on the adverse thoughts of a past-over Colonel who appears to be supporting the Democrats now?
        You seem to have forgotten the reason why both we and the USA are involved in supporting Ukraine. Shades of 1939 appeared in 2014 when Putin invaded the Crimea AND got away with it. An action that was a near copycat of Hitlers move into the Sudetenland. The UK was not ready for a war and too compalcent, so Hitler pressed ahead with his plan to rule the whole of Europe.
        The Crimea was Putin’s Sudetenland. We failed there but now he must be stopped else it will become WW3 for sure, if he is allowed to continue with his imperialist designs.

    2. John McDonald
      May 31, 2023

      Sir John, perhaps you did not hear what our Minister said in one of the Baltic countries. This loud mouth person has legally under the Geneva Convention declared the UK at war with Russia, so Russia can now legally retaliate. I see the US and Germany have distance themselves from the UK position. So much for NATO support what a joke. charge of the very very Light Brigade MKII.
      This is all utter madness and lives are being lost for what? it has all got out of hand and WWIII gets nearer every hour.
      The route cause of this is the Kiev Government wishing to remove all trace of Russian culture from Ukraine starting in 2014. Nazis thinking exposed. This is a fact that can be found on the Ukrainian Government web site. Look it up.
      Please Please wake up to the facts and not what you would like them to be and drop the Political speak to cover up what is happening in reality. The UK is promoting this war. Boris tried to get Trump on side. But at Least Trump is more concerned with the Lives lost on both sides. Boris stopped the potential peace deal/ceasefire and our PM is pouring on the petrol with full encouragement for the war to continue no matter what

      1. Derek
        June 1, 2023

        Please provide the link to prove this. I need to know who is “Our” Minister and was he/she quoting the Govewrnment or just speaking of the top of his own head?

  30. a-tracy
    May 31, 2023

    How many government bonds do workplace pensions hold?
    These workplace pension schemes have been weak, often losing money and people’s investments; if they held these bonds, wouldn’t everyone’s defined benefit pensions improve?
    Why would workplace pension investors choose to put money in the schemes we’re forced to invest in, like environmental, social and governance factors that are making us losses? Why should we be the people that contribute to those issues? How many government-guaranteed benefits schemes such as councils, police, fire, teachers etc. are invested in the same schemes?

    Why is the Canadian pension scheme doing so much better than any of the British ones?

    I need to thank Hefner for encouraging me to look into this, as I just paid up like everyone else without ever asking questions. The fund is performing poorly compared to other pensions.

  31. Keith from Leeds
    May 31, 2023

    You keep pointing out the problem, but where are the Chancellor & PM while all this is going on? Since they are doing nothing about it, we have to assume that is what they want. Who do they talk to, who is advising them? It certainly can’t be you, Sir John.
    With the highest levels of taxation for about 70 years, why are we borrowing so much? Has the idiot who agreed to inflation-linked bonds been sacked? Why does no one see the need to cut Government spending so we live within our means & don’t need to borrow, & if done properly, those spending cuts would also allow taxation to be cut. Then surprise, surprise, the economy would actually grow.

  32. turboterrier
    May 31, 2023

    Cheer up even the Germans have got it wrong according to The Telegraph on line.
    There is a massive public backlash against Heat Pumps and it is causing waves within government of enormous proportions. The report is asking will it take them down?
    Must be a current theme running through government’s just do it and to hell with what the electorate fear or want.

    1. Dave
      May 31, 2023

      65-75% of homes in Denmark are heated by waste heat from power stations or, increasingly, by various forms of renewable heat. Easier to store hot water from summer to winter than to use batteries which would be expensive and polluting.

      The current UK policy was drawn up by Prof. David McKay back when Ed Miliband was minister. McKay later partly recanted. He sadly died in 2016, so he’s not around to advise us how the policy should change.

  33. MFD
    May 31, 2023

    On an important note! Civil Servants threaten strikes over implementing Government policy!!!
    They must NEVER be allowed to do that, sack them for insubordination and miss use of office.
    It would be the thin end of the wedge!

  34. hefner
    May 31, 2023

    O/T: ā€˜the first cuckoo of Springā€™, brilliant. Thanks Penny.

  35. glen cullen
    May 31, 2023

    The House of Commons digital, culture, media and sport select committee to interview ITV over the resigning of Phillip Schofield ā€¦what an utter waste of government time

  36. John de los Angeles
    June 3, 2023

    Thank you Sir John. An excellent commentary.

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