The Rt Hon Sir John Redwood MP lambasts the Bank of England

We present two damning pieces from the former Secretary of State on the UK’s Central Bank

Montage © Facts4EU.Org 2024

He puts the root of mortgage misery for millions not on Liz Truss but firmly at the door of the mandarins at Threadneedle Street

Facts4EU.Org is grateful to the Rt Hon Sir John Redwood MP for what follows. As regular readers know, we have long been critics of HM Treasury, the Bank of England, and the Office for Budget Responsibility.

In the two pieces which follow, Sir John outlines clearly how the Bank of England blundered again and caused misery for homeowners and for the general public.

As ever, we remain non-partisan but we felt that Sir John’s analysis would be of interest to many readers, as they will not see it or hear it on the BBC.

Liz Truss, interest rates and the Bank of England

- By former Secretary of State the Rt Hon Sir John Redwood MP

“I write to counter the Labour lies that Liz Truss’s mini budget of September 2022 caused higher mortgage rates, owing to unfunded tax cuts.”

I wish to make it clear Liz Truss did not take my advice on either the mini budget or the policy on the conduct of bond buying and selling. As set out on my website I recommended tax cuts matched by some spending reductions, with support for energy bills limited to lower income households, not for everyone. I strongly argued against starting a large programme of bond sales from the joint Treasury/Bank portfolio amassed under Quantitative Easing.

1. So first the facts

UK 10-year bond yields rose to a peak of 4.4% on 09 October 2022, more than two weeks after the budget. They fell back to 3.1% on 20 November following a temporary reversal of the Bank’s aggressive bond sale programme. They hit a new high on 13 August 2023 at 4.67%. They are currently at 4.2%.

These largely mirrored US (and EU) bond rate rises. The US 10-year yield rose to 4.2% on 21 October 2022. The US bond rate then rose to a greater high of 4.9% on 20 October 2023.

These changes were not reflected in Japan or China as their Central Banks did not make the same errors as the Bank of England, Fed and ECB, who needed to rein in excess money they had created by forcing up interest rates.

This pattern shows there was no big special effect from the Kwarteng budget. It also shows rates went higher a year after the Kwarteng budget had been reversed, as happened in the similarly placed EU and US.

Next I will explain two special factors hitting the UK in the autumn of 2022 from Bank of England policy which did temporarily cause sell-offs in the bond market.

2. The Bank of England deliberately hiked mortgage rates

On 21 September 2022 on the eve of Kwarteng/Truss budget the Bank of England announced a 0.5% hike in the bank rate. This was designed to push up interest rates. Just to make sure it would mean higher mortgage rates, on the same day they announced they would over the ensuing year sell £80bn of bonds at a loss, which they had bought at very elevated prices in the previous year. Selling bonds pushes their price down which automatically pushes up interest rates.

The bond market fell in the days before the mini budget because US bonds were falling and interest rates rising, and then because the Bank of England so clearly signalled it wanted rates higher. This was a bad background for the Kwarteng announcements.

On the following Monday it became clear in the market that a number of pension funds had bought too many government bonds through levered funds. As bond prices fell they had to put up more money for bonds they owned but had not fully paid for. They did not have cash to pay for their losses so they had to sell bonds to raise money, on top of the planned massive sales by the Bank. No wonder the bond market tanked.

The Bank of England who are responsible for the overall solvency of the system at last realised their dreadful error of selling so many bonds when pension funds were so weak. They suspended the sales and agreed to buy some. The market surged upwards. Pension funds had space to reduce their heavily overcommitted positions and the crisis passed. Between 28 September and 14 October the Bank bought £19.3 bn of bonds to correct its errors.

These were the special UK factors of autumn 2022 that temporarily increased volatility. The UK trend was the same as those of the US and EU. The higher mortgage rates that resulted were caused by Bank of England policy.

Today’s higher rates have nothing to do with the long-cancelled Truss budget.

- The Rt Hon Sir John Redwood, MP for Wokingham and former Secretary of State, 17 and 18 Mar 2024.

Observations

As ever, we are grateful to the MP for Wokingham, the Rt Hon Sir John Redwood, for permission to publish his thoughts on this important matter.

Whilst some of the analysis is perhaps a little too technical for some readers, there is no doubt that Sir John is roundly condemning the Bank of England for its policies which he believes have cost the country so much. We happen to agree with him.

Combined with a Treasury seemingly staffed by mandarins who have no understanding of how growth is generated, and an Office for Budget Responsibility that determines the Chancellor’s room for manoeuvre for tax cuts without ever getting any of its forecasts remotely correct, it must be asked when heads will roll – and who is competent to roll them.

Facts4EU.Org really needs you today

We are a 'not for profit' team (we make a loss) and any payment goes towards the actual work, not plush London offices, lunch or taxi expenses, or other luxuries of some organisations.

We badly need more of our thousands of readers to become members, to support this work. Could this be you, today? It's quick and easy, we give you a choice of two highly secure payment providers, and we do NOT ask you for further support if you pay once. We just hope you keep supporting us. Your membership stays anonymous unless you tell us otherwise.

Please don't assume that other people will keep us going - we don't receive enough to survive and we need your help today. Could you help us? We rely 100% on public contributions from readers like you.

If you believe in a fully-free, independent, and sovereign United Kingdom, please join now by clicking on one of the links below or you can use our Support page here. You will receive a personal, friendly ‘thank you’ from a member of our team within 48 hours. Thank you.

[ Sources: The Rt Hon Sir John Redwood MP ] Politicians and journalists can contact us for details, as ever.

Brexit Facts4EU.Org, Tues 19 Mar 2024

Click here to go to our news headlines

Please scroll down to COMMENT on the above article.
And don't forget actually to post your message after you have previewed it!

Something to say about this? Scroll down for reader comments

Since before the EU Referendum, Brexit Facts4EU.Org
has been the most prolific researcher and publisher of Brexit facts in the world.

Supported by MPs, MEPs, & other groups, our work has impact.

We think facts matter. Please donate today, so that we can continue to ensure a clean Brexit is finally delivered.

Any credit card user

Quick One-off

From £5 - £1,000

Monthly

From £3 per month

Paypal Users Only - Choose amount first

Quick One-off

Monthly

PLEASE NOTE IF YOU WOULD LIKE TO COMMENT : You can write your comment under any existing comments below. After you have clicked to preview your comment, you MUST then click on the CAPTCHA system and send you comment, for it to be published. Thank you!

Reader Comments 21

1. Sparky , Tuesday, March 19, 2024, 09:23:

Why is JR putting this out there now and distancing himself from the Liz Truss/Kwasi Kwateng budget. He's clearly concerned about his safe seat in the upcoming election.
.
There are two key reasons for the disastrous LT/KK budget. The Permanent Secretary to The Treasury, Tom Scholar, was sacked by LT shortly before the budget, he would have been key in providing communication between the Treasury and the BoE. LT rejected an offer by the OBR to provide a forecast for the budget which would have given confidence to the markets that the budget was costed.
.
Rishi Sunak did warn in the Cons election campaign that LT policies would not work.
.
The OBR provided a report for the March 2024 budget. The OBR still maintain that there will be a 4% reduction in GDP as a result of Brexit.

2. There is no 'g' in Brexit , Tuesday, March 19, 2024, 09:49:

And does anyone still believe any forecast put out by the OBR? To do so would be a triumph of hope over experience.

3. Ashley Great Britain , Tuesday, March 19, 2024, 10:10:

I never blamed lizzy truss. What she had planned was a good idea and would have helped the economy. She was then removed and replaced with the sunak puppet.
It seems the BofE, OBR and Conservatives designed our current financial problems.
My mortgage has gone up by £300 a month for the same thing. At a time when everything else has increased in price across the board.
I am so angry at our incompetent political elite's and institutions.
They are insane.

4. NH , Tuesday, March 19, 2024, 10:26:

1. Sparky, "There are two key reasons for the disastrous LT/KK budget"
John redwood has provided a very detailed and rational analysis of what happened with precise figures, dates and comparisons. If you actually look at the details they make perfect sense.
.
You have tried to dismiss this very detailed analysis with you own completely irrational opinions. As usual you have not mentioned a single verifiable fact and you have not countered any of John redwoods arguments with any alternative figures or facts. As usual you are completely reliant on quoting the opinions of sources which have repeatedly been discredited for their proven incompetence.
.
Your response sums up the whole remain-rejoin campaign:
.
Completely ignore any factual complete information.
Ignore historic performance or comparisons with other regions of the World.
Misrepresent any information by selecting isolated statistics.
Falsely claiming Brexit is imposing high costs on the UK while ignoring the huge and constantly growing costs of EU Membership.
Totally ignoring the huge problems the EU is experiencing.
Create ridiculous forecasts of an imaginary future to create fear.
Quote comments from other remain organisations at every opportunity and claim they are facts.
.
John Redwoods analysis looks very professional and inspires confidence in his knowledge and judgement. Your response to this makes you look simplistic, desperate, delusional, and ridiculous.

5. NH , Tuesday, March 19, 2024, 11:39:

The BOE performance has been terrible but this started in 2013 during Mark Carney's tenure. His actions left the BOE in a very vulnerable position and this was exposed when inflation increased rapidly. The result is this is now costing the UK Government (ie general public) a fortune. Ironically the pension funds that had put them selves into a hugely risky position by using leveraged assets have now benefitted massively from these events.
.
Liz Truss and Kwasi Kwarteng were in a very difficult position because they did not have a full political term and their policies to stimulate investment would obviously take a long time to show results. This seems to have resulted in them implementing their policies too rapidly. However they were not responsible for the fragile state of the BOE or the fragile state of the DB pension funds. As usual this situation has been used as "political capital" by the manipulators and wafflers but It would be foolish to discredit their core policies without understanding the full details.
.
As expected Mark Carney has looked for a convenient excuse and it seems that Brexit is the excuse for everything, although he can't show how Brexit could have possibly caused these problems. A Huge contrast to his predecessor who managed the BOE perfectly and was a strong Brexit supporter.

6. Sparky , Tuesday, March 19, 2024, 13:57:

4 NH. Liz Truss sacked the Permanent Secretary to the Treasury. Liz Truss rejected an offer of analysis of the budget by the OBR. Both facts.
.
In Nov 22 KK said in an interview that he had warned LT that she was going too fast with tax cuts and spending.
.
JR is trying to blame others, usual Brexitear approach, surprised he didn’t mention the “deep state”.

7. LuxuryBalloon , Tuesday, March 19, 2024, 14:08:

Fact is that the Conservative Party trailed Labour by only 8-10 points in the polls before Truss’ PMship … and has trailed Labour by 20+ points ever since her disastrous mini-budget. John Redwood must realise that it is difficult for the Conservatives to portray themselves as economically credible ever since Truss’ mini-budget … as he distances himself from Truss’ policies.

8. KB , Tuesday, March 19, 2024, 14:58:

LB (7) I don't think he is distancing himself from LT's policies. He is supporting of them.
He is basically saying that the BoE and other organisations acted in such a way to remove the Truss government.
The blob do not want a successful Brexit government.

9. NH , Tuesday, March 19, 2024, 14:59:

6. Sparky, "Both facts"
These are both just incidental facts. She sacked a civil servant because he did not agree with her policies which is the sensible thing to do. The OBR did not exist before 2010 it did not stop governments before this producing sensible budgets. The OBR has become a "straight jacket" around Governments it is right that a Government should evaluate it's performance and decide if it is fit for purpose.
.
7. LB, "as he distances himself from Truss’ policies"
As far as I can see John redwood is mainly distancing himself form the BOE policies which were probably agreed before Liz Truss was elected. As the mini budget came shortly after she was elected she failed to intervene with the BOE. John redwood does state quite correctly that Liz Truss's budget did not cause todays high interest rates.
.
7. LB, "Conservatives to portray themselves as economically credible"
All of the economic problems the Labour Party are criticising were initiated by policies put in place by the last Labour Party Government. eg:
.
Banking Collapse leading to Bank Bailouts.
Fragile Banking Sector.
Fragile Bank of England Position.
Huge Deficit Leading to the need for Austerity.
Fragile Private Pensions.
Huge Increase in Debts and Liabilities restricting Government options.
.
I agree that the Conservative party have failed to communicate this but they did not create the underlying problems. The present Labour Party have not done a single thing to establish economic confidence, we still don't even know what their economic policies are. There does not seem to be much positive support for the Labour Party they just happen to be in the right place when the Conservatives Party decided to destroy itself..

10. LuxuryBalloon , Tuesday, March 19, 2024, 18:12:

9 NH If John Redwood fully criticises Liz Truss he would undermines his own credibility … as he was leading Liz Truss’ leadership campaign to take over from Boris. But John Redwood clearly states ‘I recommended tax cuts matched by some spending reductions, with support for energy bills limited to lower income households, not for everyone.’ Liz Truss did not follow Redwood’s advice which was the root cause of the problem. In this article John Redwood criticises the approach by the BoE to fix the problem caused by Truss’ mini-budget.

21 comments, page 1 of 3

Add comment:

Please note: Your email address is never published unless you choose to enter it.