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Former Bank of England boss accuses government of ‘undercutting’ financial institutions

Written by: Emma Lunn
Mark Carney, who headed up the Bank of England from 2013 to 2020, has criticised the government’s mini Budget, saying it is "undercutting" the UK's key economic institutions.

Mark Carney, who headed up the Bank of England from 2013 to 2020, has criticised the government’s mini Budget, saying it is “undercutting” the UK’s key economic institutions.

In an interview with the BBC, Carney said the government’s tax-cutting measures were “working at some cross-purposes” with the bank.

His comments came after the bank was forced to intervene in the government bond market in an attempt to stabilise the UK economy.

The Bank of England announced a £65bn temporary bond buyback programme starting yesterday. Investors had been demanding a much higher return for investing in government bonds, causing some to halve in value.

Pension funds invested in bonds were forced to start selling, sparking fears of a fresh market downturn.

Market meltdown

The financial markets have been in turmoil since chancellor Kwasi Kwarteng’s mini Budget on Friday where he announced massive tax cuts for high earners. The £45bn worth of tax cuts has sparked concerns that government borrowing could surge along with rising interest rates.

The pound crashed to a new low on Monday, trading at $1.03 at one point, before a slight rally. This morning, it sat at 1.12 against the Euro and 1.08 versus the US dollar. It was at 1.16 against the Euro this time last year.

Carney also criticised the decision not to publish economic forecasts by the Office for Budget Responsibility (OBR) alongside Friday’s fiscal announcements.

There has also been chaos in the mortgage market as lenders withdraw products at the same time borrowers rushed to fix rates ahead of a possible emergency interest rate rise.

“Partial budget…led to dramatic moves in markets”

Speaking to the BBC’s Today programme, Mr Carney said that while the government was right to want to boost economic growth: “There is a lag between today and when that growth might come.”

He said: “There was an undercutting of some of the institutions the underpin the overall approach – so not having an OBR forecast is much-commented upon and the government, I think, has accepted the need for that but that was important.”

The OBR analyses the impact of government’s plans on the economy and on public finances – but the Treasury decided not to publish its forecasts on Friday.

Carney also told the BBC: “Unfortunately having a partial budget, in these circumstances – tough global economy, tough financial market position, working at cross-purposes with the Bank – has led to quite dramatic moves in financial markets.”

The Treasury said the OBR will release its full forecast when Kwarteng announces his medium-term fiscal plan on 23 November. A full Budget is not scheduled until Spring next year.

Carney’s comments follow warnings from the International Monetary Fund that the tax cuts announced in the mini-budget would increase inequality. Ratings agency Moody’s also issued a warning to the UK government over its new monetary policy.

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