tv Financial Turmoil BBC News October 2, 2022 12:30pm-1:01pm BST
king charles will now not be at next month's climate change conference in egypt following reports that prime minister liz truss "ordered" him not to attend. brazilians have begun voting in the first round of an election which has seen a bitter campaign between past and present presidents. and kenya's amos kipruto crosses the finish line to win the men's elite london marathon with an unofficial time of two hours, four minutes and 38 seconds. now a bbc news special programme... uk financial turmoil. hello and welcome to this special programme on the finacial turmoil we have all seen and experienced
over the past week and beyond. what does it mean for the pound in your pocket, your mortage rate, and the future of the uk's economy? to help answer these questions, we have a panel of experts. andrew walker is a former bbc economics correspondent who has reported on many tumultuous events in economies around the world and will turn his weathered eye to what the uk has been experiencing. and from across the uk, we have mercedes osborne — a director at the exeter based mortgage brokers pointers financial — paul lewis, is a personal finance expert who presents the bbc�*s money box radio show and joins us from llandudno, and fiona cincotta is a currency expert and senior market analyst at city index — the online trading platform. she's in north london. welcome to all of you.
so, first, andrew how did all this turmoil start? the pound at one stage went to an all—time low and lost ground against other currencies. the bank of england which is responsible for controlling inflation and ensuring financial stability kept on trying to restore calm and it certainly seemed to have had some partial success on that although the situation remains a little volatile at the moment. the bank is also expected to raise interest rates again sometime in the coming weeks. the reasons for this stormy time in the market are disputed. the government argues it is an international problem and it must be said that inflation, higher interest rates, currencies falling against the dollar are very widespread indeed, but critics do argue it's more acute here and the government has mishandled its policy announcements and undermined confidence in the market.
aboutjust how well the government is managing its own finances. we had a meeting this morning between the budget of the office for budget responsibility and the chancellor and the prime minister. there is so much pressure for analysis for the obr to be published, we are not going to get it until november, but there has been that meeting. one of the things bothering the people in the financial markets is that chancellor declined the obr of an assessment of the governments finances and what the impact would be of its proposed policy changes. they do see that as a kind of an indication of, from the obr, that the government's financial sums add up as being a very reassuring
thing if the government can get back from obr. thank you. let's bring in fiona. confidence is key. market confidence is important. explain why it works and why do they all seem to work as a pact? there a saying that fear and greed moves the markets. an over simplification. fear has been reflected in the sharp falls that we saw and the other thing to take into account, you have that whole concept of fear and greed and then
you've also got the idea of when certain key levels for key price points are taken out, that can drive that selling and that fear even further. so for example if we take out 1.10 against the us dollar, that was a round number, but the key concern here is the outlook for the uk economy and what it meant how uk economy was going to be able to going forward. in terms of those drivers for the markets, you talk about fear and greed, a lot of what was in the mini budget, the biggest expense was already in the pipeline, that help with energy bills. then of course there was the unfunded borrowing for the tax cuts. what was it in particular that spooked the markets at that point? i don't think it was one thing in particular,
it was just the shock of the size of what the government was, what the chancellor was going for. and the fact that it wasn't funded. the fact that it was looking to borrow money and if we add on all of that to the big economic backdrop this is all coming into, that's what sort of set off the pound on friday. sent it sharply low with the absolute surprise to the size of the whole thing. then we had more comments over the weekend from the chancellor that there could be more to come and that was the last thing the pound investors and investors in the uk in general needed to hear. because that set off those fears of where is it going to stop? how's it going to be paid and the funding coming from? that sent the market loweer again on monday. as those fears came through, investors pulled money out of the uk because they didn't want to invest here and then when we see investors pulling out that is when prices drop. thank you. what the government says it's trying to do is to grow the economy.
let's more from our political correspondent. when liz truss was running for the conservative party, she made no secret that she was in favour of tax cuts. her and the chancellor kwasi kwarteng think people and businesses have been paying too much in tax for too long, and that is what is holding people back, more growth means more for everybody in the long term is their view. to fund the tax cuts announced last week in the mini budget, the government was prepared to borrow a lot and to fund a big support package to help people with rising energy bills. normally alongside a big announcement like that you would get an independent forecast of the economic outlook and the state of government finances from the independent forecaster, the office for budget responsibility. that was not provided last week even though the obr did offer one and many people think that was why the markets reacted in the way that they did although the government maintains
there are global factors at play. today the prime minister and the chancellor are meeting the obr, but this is the end of an incredibly turbulent week. labour and the liberal democrats say this is a crisis of the government's own making and are calling for tax—cutting measures to be abandoned and there are plenty of unhappy conservative mps, too. this is not the state the party wanted to be in going into their party conference on sunday. a lot of terminologies coming into the public sphere. it's hard to keep up with them. remind us of the office for budget responsibility when it was set up and why. 2010 is when it was set up and before those days was what happened was that the economic forecasts, which underpin what the chancellor can expect their tax policies to generate, and a forecast for what those tax revenues
and what the government spending would look like, were all done in—house by the treasury. there was a sort of element in that of a concern that it looks a bit like marking your own homework and so one of the things that the chancellor at the time, george osborne, did was to set up the office for budgetary responsibility with a view to providing an independent assessment of what the outlook was, in particular what the outlook, how the outlook would be changed by particular tax and spending policies. just to give the proposals in his budget that much more credibility so that it didn't look like he was, as it were, massaging the figures to make it look a little bit more favourable.
because another thing we have been seeing is that a lot of mortgage deals have been pulled up the market, around 40% of mortgage deals that were on offer have disappeared and lenders are repricing the deals they are putting out. you may have seen on question time last night one person asked the panel... she had been offered a rate of 4% and that was pulled in the immediate aftermath of the budget and then she was presented with an offer ofjust over 10%. this is what she said. i just want to know what the plan is for mortgages? because i was in the process of getting a mortgage as a young person and was told 4% but was told now that the lender has pulled that offer, now the best i can get is about 10.5%. they are saying you need to immediately look at putting your application through because the lenders may even pull these offers and for me looking now as a first—time buyer,
i don't think i can now afford to get a mortgage. let's talk to our mortgage expert. an offer of a mortgage of more than 10% seems extraordinary. what do you see on the markets? we have seen a huge increase in rates in the last week alone. it's been reported in news earlier this week to lenders completely withdrawing from the market. one of those has actually come back to the market now, but you are seeing a considerable hike to what they were. they were putting rates of 3% up to 4% depending what sort of deposit you have. we are now looking at rates much nearer to 6% for a lot of our clients. that is before interest rates potentially go higher which is what is expected to happen. exactly.
in terms of the impact of that, what is your analysis? a lot of people are facing a decision as to whether or not to buy a cheaper property potentially. the larger impact looks at those looking to remortgage or refinance their property they already own and the issue with that is they may be accustomed to paying a certain amount in coming to the end of their fixed rate and is now going to cost them anything from hundreds of pounds more a month that people are going to have to find. there will have to be cutbacks. incidentally also lots of lenders are looking to extend mortgage terms that you can have available, not every lender used to offer a mortgage for a0 years and that's very commonplace now within the market. lots of people now will look to take advantage of those extensions to keep the monthly payments as low and as affordable as possible. that is potentially a live raft,
extending the term, because mortgage companies are tightening up the criteria but if you are somebody whose mortgage term is coming to an end, you are not intending to move, you are pretty much stuck in the rate is so much higher and it's difficult to see what people can do. what advice would you give? it's important everybody goes to speak to their mortgage advisor at their earliest convenience. everyone is in a position where they need to review things, potentially and it's really important to get that professional advice. extending the term might not work for everyone if your income and circumstances don't allow, and underwriting is another issue, and going back to the lady on question time, somebody from her perspective, it's very difficult, if you haven't found a property yet as a first—time buyer, which at the moment, lots of estate agents are telling me it is still busy, so you might not be able to find that property group that quickly and at this point unless you submit a full mortgage application
you cannot secure a rate, so some people might end up in a position where they panic buy something but that's not necessarily the right thing to do. thank you, mercedes. can you do some number crunching on inflation, because it is 9.9% and the bank of england remit is to bring it down to 2% and the government says that by its intervention on energy bills that should bring inflation down by around 5% but we are seeing cost of living continue to go up, so it's hard to get a grip on where it is potentially going to go. and the rising prices are the reasons we have got this issue with mortgage rates. interest rate are the bank of england's main tool for getting on top of inflation
and prices rising across the board and the market is edgy, nearly 10% in the last year and that is far above the target that the bank of england tries to achieve which is 2%. more expensive energy is a central part of this story, almost everything we buy needs energy. we are looking at factories, shops, transporting of goods, so it spreads mostly to goods and services, it's part of the story. war in ukraine has also affected food prices but russia are very important global suppliers of wheat and other food and its interrupted supplies and has affected prices there and there is also the global recovery caused by the pandemic and there are signs of it faltering and it has meant people have wanted to spend more and that has added to the pressure of rising prices and then there is the fall
in the pound and that makes imported goods more costly. let's talk more about what is happening with the pound and we can bring in paul lewis from money box live, tell us more about the impact of the weakness of the pound. the dollar is strong against all currencies but the pound has taken a particular battering, so what impact does it have? it has, and that affects most of the prices we pay because things are priced in us dollars. petrol, diesel, those are priced in us dollars as they come into the country, so if the pound buys fewer dollars than the price of petrol and diesel will go up and as we heard, the pound reached a record low and has rallied a bit, but very low to what it has been so a weak dollar affects everything. the cost of importing grows and everything we might want to buy that's coming from another country that comes in a container and the transport of containers is priced in dollars so that will put up prices. we don't have to tell people that if they go into the supermarket how much things have gone up and a survey a couple of days ago
said they had gone up by more than 12% which is more than the rate of inflation you mentioned earlier, so the weak dollar is affecting people very much in this country and is storing things up for the future, because these goods coming in now will not be in the shops for a while, maybe not till christmas, but they will be more expensive when we buy them. stay with us, paul. i want to bring in samira hussein in new york and has been explaining more about the dollar. so what does the turmoil in the uk have to do with wall street? financial markets are often pretty tightly connected and will react to news happening in other countries. american economists and even the international monetary fund have derided the british government's so—called mini budget, saying it will lead to an increased disparity between the rich and poor and is not really a very prudent way to address the country's economic rows.
“ woes. investors have been sterling selling at such a fast clip that the pound has hit a record low against the us dollar. why does that matter? most international trade is done in us dollars. any fluctuation of one currency against the american greenback can have a massive impact on the finances of a company. take coffee, for example. coffee beans are one of the most traded commodities in the world. most coffee contracts are in dollars and that means if you are a coffee roaster or seller in the uk, your costs will likely go up pretty dramatically if there is a collapse in the value of the pound. americans are being hit with inflation as well but since their spending is in dollars, they have some protections that other countries and other currencies don't enjoy. wall street is looking to the uk with a combination of sympathy and alarm.
paul, let me bring a question to you from linda. she asks, with food prices rising higher, what will the government do to help poorer people? the government says it's done a lot, and we've talked earlier about the extra help for energy bills, £400 off electricity bills but they are going up by £500, typically in the next, in fact tonight, so i think the government is saying it is doing a lot but i don't think it's doing anything directly to help food prices and what has worried me this week is that the next inflation figures that we get later in october will be the one that should be used to set benefit rates. the previous conservative government under borisjohnson said they would honour the commitment to raise benefit rates in line with inflation, so as we have been hearing,
that should mean maybe another 10% on benefit rates from april but neither the treasury minister, nor the chancellor, kwasi kwarteng, have said that they will definitely do that. they will do it for pensioners but they will not necessarily do it for ordinary benefits paid to working age people and disabled people, so that's the big worry for people that come april when they had a lot of price rises over the year they will not be getting an extra 10% on their benefits. and i think the government will have to think carefully about how it will protect people and make sure that they can afford to do their shopping, especially in light of the fuel prices going up as well. a question here saying that the energy companies buy gas at the rate today, and the household gas bills are set to rise. i'm on a prepayment meter, so can i buy my gas before the increase as the energy companies do? it is possible. it depends what sort of prepayment meter it is. if it is a smart meter where it does everything automatically, you can't. your price will rise at midnight
tonight like everyone else but if it's a meter where you top it up and take your key or card to a local shop, then you can load it now with more units, if you can afford it, today, and they will be used at that price. this does not necessarily apply to all suppliers but it's worth trying if you can get to the shop where you normally charge up your key or card and put more units on it, if you can afford it, those will be fixed at today's prices rather than tomorrow, but it doesn't necessarily work with every supplier but it is certainly worth trying and everyone else should be reading their meter this weekend to make sure that they don't pay any extra for energy already used and charged today at tomorrow's prices. good advice. andrew, i mentioned your extensive experience covering economics over 20 years. how does this compare with things you have seen in your time. it's certainly been a turbulent
period and some of the moves over very short periods of time in the value of the pound sterling and in the government's borrowing costs as set in the bond market were remarkable. but it's not the financial crisis of 2008 which was a time when the government here and in many other countries had to bail out the banks, and we have not seen the degree, that financial crises have _ produced over the years. i've followed that in many developing economies. it's worth spelling out that the government really does have some serious economic challenges, all the same. the big objective they have set out is to get the economy to grow more strongly, which would of course be good forjobs and incomes. the case for last week's announcements, particularly the bit on tax cuts was as the chancellor put it was to boost the incentive for work and enterprise.
another challenge is controlling the rising debt of government but another one is dealing at the same time with the cost of living crisis and dealing with all of these things at the same time is very difficult because dealing with one of them might have adverse consequences for the other, and in particular the tax cut plans, driven by the desire for growth, could make it harder for the government to keep borrowing and inflation under control. that is certainly the view that some people in the financial markets have been suggesting, and that was also the line that was present in a barely—veiled criticism from the international monetary fund. but for now the government is sticking to its guns and the chancellor plans to tell us more next month.
let's get some thoughts and predictions on where this could go. what is your quick prediction in terms of where we will be in a year's time? we had no idea we would be here a year ago. indeed. and so much of this, by no means all of it, is driven by the war in ukraine. some people thought it might be coming but it was not factored in by economists. i think we are going to have a period of weak economic growth, perhaps none, perhaps a period of declining economic activity. inflation will probably come down and that is because of the rising energy and food prices will not continue, and what happens is that in terms of inflation that effect drops out 12 months after it happens, but it does mean the level of those prices is still going to be high and people are still going to struggle with paying those bills. it's just they will have less to worry about than of them rising in the future, so there's no question we are in for a pretty difficult 12 months. and fiona, your quick analysis for where things might be in a year's time. it is so difficult to know what will happen in a year's time. at the start of each year,
at the end of each year, and the beginning of a new one we do a report as to what we think will happen and we did not manage to predict coronavirus or the war, so it's very difficult. a lot is going to depend on what the bank of england were going to do, near term, in november, how large they will move with the rate hikes, and when the federal reserve will start cooling, lowering their rate hikes as well. i think that will be very relevant to the broader financial market, so, over a year's time, then we would have expected this to start to peter out, and things get to a new normal level. hopefully the pound above where it is at the moment. thank you so much, fiona, and thank you to all of my guests and thank you to you for your company and for sending in your questions.
goodbye. a soggy start across england and wales, but that rain will clear, a fine afternoon with sunny spells. this weather system clears away quicker, a brighter, drier afternoon for most. by lunchtime, maybe a few showers across the channel islands. away from that, isolated showers to the north and west of scotland. fewer showers than yesterday. temperatures up a little bit. that is because of lighter winds than yesterday, especially for england and wales. still a breeze in the north and west of scotland. northern ireland, the breeze picks up. away from that, across england and wales, south—east scotland,
a few mist and fog patches forming. that will not stop temperatures from dropping too much. monday morning, breezes towards the west of scotland and northern ireland, rural parts of england and wales, temperatures in two or three celsius, low enough for a touch of frost on the grass and the cars. dry to begin with, but as these weather fronts push in with a strengthening wind, clouds will run ahead of it, not as sunny as it will be for some of you this afternoon, but still some spells of hazy sunshine, isolated chance of showers in cumbria, dorset, rain in north and western scotland, turning heavy through the afternoon, across parts of northern ireland. temperatures will be on the milder side for this stage in october. a mild night to come, through the night, into tuesday, weather fronts pushing southwards,
a wet start across scotland and northern ireland, two batches of rain working into england and wales through the day, gradually fizzling, brightening up through scotland and northern ireland. east anglia, south—east, could stay dry throughout. that area of cloud extends back into another system which will bring more widespread wind and rain on wednesday. end of the week looks fairly blustery, back to a mix of sunshine and showers.
this is bbc news, i'm luxmy gopal, and these are the latest headlines. britain's prime minister admits to the bbc that she should have laid the ground better for announcements that sparked chaos on the financial markets and divisions in her own party. i do stand by the package we announced, and i stand by the fact that we announced it quickly because we had to act. but i do accept we should have laid the ground better, i do accept that. the sheer risk of using borrowed money to fund tax cuts — that is not conservative. king charles will now not be at next month's climate change conference one of the world's worst stadium disasters. at least 125 people have died in a stampede at an indonesian football match after police tear—gassed pitch invaders. translation: i regret this tragedy,