Pound falls again as Bank rules out emergency rate rise - live updates

Lenders are scrambling to pull their mortgage deals from the market amid speculation that the Bank of England will be forced to combat the plunging value of the pound, despite Governor Andrew Bailey ruling out action this week, Rachel Mortimer writes. 

Britain’s biggest lender Halifax will temporarily pull deals which have a fee through its mortgage broker arm on Tuesday evening. These deals are typically priced with lower interest rates than mortgages without a fee.

A spokesperson for Halifax said the changes were as a result of “significant changes in the cost of funding” and said its remaining deals without a fee would remain at the same price.

The Nottingham for Intermediaries, another lender, is also pulling 14 deals and repricing some of its residential, buy-to-let and holiday let mortgages.

Read the full story here. 

Strikes planned next month by bus drivers in London have been put on hold following a new pay offer, according to trade union Unite.

Some 2,000 drivers employed by Arriva were due to start indefinite industrial action from October 4 following a row over wages.

But following a new pay proposal, that action is being suspended.

 Much is quite rightly being written about what rising interest rates mean for home owners with mortgages.

And here is the sobering verdict of Samuel Tombs, chief UK economist at Pantheon Macroeconomics, on the choices now facing the Bank of England:

So the choice the MPC faces is either to defend sterling and risk a banking crisis, or let it fall further and accept that inflation will remain above target as far as the eye can see. There are no good options, but the latter would be less damaging (2/2)

— Samuel Tombs (@samueltombs) September 26, 2022

 My colleagues Tim Wallace and Tom Rees, of the Telegraph economics team, have more on rising mortgage costs.

Liz Truss and Kwasi Kwarteng have been accused of “playing A-level economics” by a former minister amid rumours that MPs are already handing in letters of no confidence in the Prime Minister.

As concern mounts after the pound hit a record low against the dollar, one MP warned that Ms Truss would be in danger if interest rates begin to rise.

The MP told The Telegraph backbenchers were “petrified” by the impact of higher mortgage costs on their chances of keeping their seats.

Daniel Martin, our Deputy Political Editor, has the full roundup here. 

Nick Macpherson,who was permanent secretary at the Treasury from 2005 to 2016, has this to say of the Government's borrowing plans and the impact on financial markets:

Meanwhile, the UK will pay a high risk premium for the increased debt it is selling, making it all but impossible to live within spending plans, even before inflation. HMG is expecting public sector workers to take bigger real wage cuts even than in 1931, which led to mutiny 5/

— Nick Macpherson (@nickmacpherson2) September 26, 2022

After today's upheaval, tourists looking to exchange their pounds are already finding they worth less than dollars at certain currency shops, according to Bloomberg.

This is despite the fact that sterling has not yet sunk to parity with the greenback on financial markets.

Currency shops often provide worse rates than markets because their costs include various fees.

More here:

The ChangeGroup office in Leicester Square, a popular London tourist destination, was selling $100 for £104 at 1 pm on Monday, including commissions. A representative for The Change Group International Plc didn’t immediately return a call seeking comment.

Of course, currency exchange bureaus in airports and neighborhoods popular with travelers typically charge worse rates, and include higher fees, than those set by financial institutions trading among themselves. 

Still, the pound’s plunge from above $1.38 last October is making travel to Britain more affordable for US tourists -- while driving up the cost of holidays abroad for Britons. 

At 5pm the pound was down $0.0233 against the dollar at $1.0688, according to PA.

That's compared to $1.0920 when UK markets closed on Friday. 

Sterling had fallen even lower after markets opened in Asia, to close to $1.03.

It had regained ground this afternoon and was largely flat before tumbling again.

Viraj Patel, foreign currency and global macro strategist at Vanda Research, is doubtful that the Bank of England's statement will placate markets for long: 

⚠️ No action from the BoE based on latest statement... looks like they aren't doing anything inter-meeting. This will be a disappointment for $GBP markets. I suspect this statement will last 24-48 hours before something breaks in markets & forces the BoE to act pic.twitter.com/jYTsY83RKI

— Viraj Patel (@VPatelFX) September 26, 2022

 Others, including Panmure Gordon chief economist Simon French, seem to be less gloomy:

There are no easy options for a finance ministry/central bank facing debt/FX markets shorn of confidence. The statements help (& were least bad option) but behind scenes rebuild of credibility & accountability will determine whether they hold back selling pressure #PoundSterling

— Simon French (@shjfrench) September 26, 2022

???? Market turmoil forces Halifax, UK's largest mortgage lender, to temporarily withdraw all mortgage products that come with a fee.

"As a result of significant changes in the cost of funding, we're making some changes to our product range."

— Andy Bruce (@BruceReuters) September 26, 2022

City aficionados are now reacting to the duo of statements from the Bank of England and the Government, following sterling's rout.

Paul Dales, chief economist at Capital Economics, is quick out the blocks with this note:

We said this morning that the fall in the pound would need some response from the government and the Bank. They have both so far done the bare minimum.

It's hard to know if this will be enough. It is possible that this is enough to stop the rot and then markets will happily wait six weeks for the Bank to respond and nine weeks for the government to actually confirm what its new fiscal rules are and how it intends to meet them.

But as the pound has fallen back since the statements, the markets may well need more reassurance and some actual action (i.e. details on the fiscal rules, a change in policy from the government and/or an interest rate hike from the Bank at an emergency meeting before 3rd November). Much will depend on whether the pound continues to fall in overnight trading.

 And here's a flavour of what is being said on Twitter:

The HMT & BOE response: no worries, we’ll get back to you in November.

— Duncan Weldon (@DuncanWeldon) September 26, 2022

We will not hesitate to change interest rates, says the Bank of England, hesitating to change interest rates.

— Henry Mance (@henrymance) September 26, 2022

Here is the statement Threadneedle Street issued this afternoon, just moments after a separate announcement by the Treasury:

The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.

In recent weeks, the Government has made a number of important announcements. The Government’s Energy Price Guarantee will reduce the near-term peak in inflation. Last Friday the Government announced its Growth Plan, on which the Chancellor has provided further detail in his statement today. I welcome the Government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.

The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term. As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly. The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2pc target sustainably in the medium term, in line with its remit.

For those interested, here is what the Treasury has said this afternoon in full:

On Friday 23 September, the Chancellor of the Exchequer, the Rt Hon Kwasi Kwarteng MP, set out how the government would fulfil its commitment to cut taxes for people and businesses and announced wider supply-side policies to grow the economy.

Building on this, as the Growth Plan set out on Friday, Cabinet Ministers will announce further supply-side growth measures in October and early November, including changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.

Next month, the Chancellor will, as part of that programme, outline regulatory reforms to ensure the UK’s financial services sector remains globally competitive.

He will then set out his Medium-Term Fiscal Plan on 23 November.

The Fiscal Plan will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium-term.

In the Growth Plan on Friday, the Chancellor set out that there would be an Office for Budget Responsibility forecast this calendar year. He has requested that the OBR sets out a full forecast alongside the Fiscal Plan, on 23 November.

As the Chief Secretary to the Treasury set out this weekend, the Government is sticking to spending settlements for this spending review period.

The Chancellor also confirmed that there will be a Budget in the Spring, with a further OBR forecast. 

In what looks like an attempt to calm market fears, the Treasury has this afternoon announced that Kwasi Kwarteng will set out a plan to cut the UK's debt on November 23.

The "medium-term fiscal plan" will "set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium-term", the statement says.

It will also be accompanied by full forecasts by the Office for Budget Responsibility - which were conspicuously absent from Friday's mini budget.

The Treasury statement says ministers will also set out further details in October and November on how they will spur economic growth through changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.

Traders around the globe continue to offer views on why the pound has been hammered today - and they are not holding back. 

Derek Holt, head of capital markets economics at Scotiabank:

UK markets are blowing up again in the wake of the Truss administration's tone-deaf fiscal largesse that was delivered on Friday into a bond market that loathes any steps that fan inflation risk and higher debt issuance.

How could the admin and its political wonks have so seriously misjudged the reaction to spending hundreds of billions of pounds?

Fiona Cincotta, senior financial markets analyst at City Index:

The market's reactions show that investors have lost confidence in the government's approach, creating a level of volatility that puts the pound on par with some emerging market peers.

There is a good chance that the [Bank of England] will now be forced to hike rates aggressively in the coming November meeting if an emergency intervention isn't made before.

Source: Reuters

Victoria Scholar, head of investment at Interactive Investor, says the money markets are now pricing in an emergency rate hike by the Bank of England, potentially of 175 basis points (so to 4pc) by November.

This helps to explain sterling's recovery since the morning.

But that isn't the end of the Government's woes, as Scholar's colleague Sam Benstead explains: 

Bond investors are panicking, dumping UK government debt. Yields, which move inversely to price, have therefore shot up. The 10-year UK gilt now yields 4.1pc, up from 3.5pc before Kwarteng’s budget.

Nearly all UK bond maturities now yield more than 4pc, pushing up the cost of issuing new debt for the Government at a time when they are setting out to borrow on a huge scale to fund tax cuts.

Bonds are selling off because investors expect the Bank of England to increase interest rates more rapidly to control inflation and boost the value of the pound. Financial markets now point to interest rates of 5.5pc in the spring, up from 2.25pc today, according to some economists.

Amid today's panic over the plummeting pound, Kwasi Kwarteng is apparently cool as a cucumber. 

One person "close to the finance minister" has let it be known that the Chancellor - whose mini-budget on Friday set markets so aflutter - is "unmoved" by today's events, according to Reuters. 

"Markets go up and down," one veteran Conservative Party source said. "We did something structural, short term, that will have seismic and positive long term benefits."

It's a pitch that will probably require a bit of work if the Chancellor wants to reassure rattled Tory MPs.

The UK Government has announced fresh a fresh raft at sanctions against "collaborators" suspected of aiding Russia's sham referendums in Ukraine.

People in four regions of eastern Ukraine are voting for a fourth day in Moscow-organised referendums on joining Russia, a plan Kyiv and its western allies have denounced as a cynical ploy. 

In response, the Foreign Office has today announced sanctions against 33 more individuals today, including board members of Russian banks.

The list also includes four oligarchs accused of being part of Vladimir Putin's "cabal": God Nisanov and Zarakh Iliev, known as "the Kings of Russian real estate (combined fortune: £2bn); metals tycoon Iskander Makhmudov (worth £2.7bn); and gas tycoon Igor Makarov (worth £1.6 bn).

Four separatist political leaders have also been sanctioned, as well as - intriguingly - a firm called IMA Consulting, which is known as "Putin’s favourite PR agency". IMA has been in charge of publicising the referendums.

There are reports of a sudden and mysterious drop in the pressure of the mothballed Nord Stream 2 gas pipeline from Russia to Germany.

Pressure dropped from 105 to 7 bars overnight, a spokesperson for the pipeline's operator said, adding that the company did not know the cause. Reuters has this:

The Russian-owned pipeline, which was intended to double the volume of gas flowing from St Petersburg under the Baltic Sea to Germany, had just been completed and was filled with 300 million cubic metres of gas when German Chancellor Olaf Scholz cancelled it shortly before Russia invaded Ukraine.

[Nord Stream 2's] Swiss-based operator, which has legally been wound up, said it had informed all relevant authorities and that the leak, if that were the cause, could not have been at the landing point in Lubmin, northern Germany.

"If it were in Lubmin, you'd have heard it," the spokesperson said.

That's all from me for today – thanks for following on a day of turmoil for markets.

It's not over yet though – we're still expecting to hear from the Bank of England. Stay tuned with Matt Oliver for more!

Dario Perkins at TS Lombard sums up the conundrum facing the Bank of England quite nicely...

BoE options:1) Say & do nothing - looks clueless/ asleep at the wheel2) Say something but do nothing - looks toothless3) Do something small (50bps) - mkt will push you to do more, perhaps quickly4) Do something big - if this doesn't work, you are in a worse position than (1)

— Dario Perkins (@darioperkins) September 26, 2022

Things are looking bumpy across the Atlantic as well, with Wall Street's main indices starting the week firmly in the red.

US investors are still focused on interest rate rises by the Federal Reserve and fears these could push the economy into recession.

The S&P 500 and Dow Jones fell 0.4pc and 0.5pc respectively, while the tech-heavy Nasdaq slumped 1.7pc.

Kwasi Kwarteng’s debt-fuelled mini-Budget sent the pound and UK bonds into meltdown on Friday – but on Monday it became clear that it was only the beginning. 

Investors have dumped UK assets in the wake of the statement, selling off the pound and sending government borrowing costs surging. Britain has suddenly become a riskier bet.

But why has the pound gone into decline, what does it mean and what can be done about it?

Eir Nolsoe and Tom Rees answer those questions and more. Read their full story here.

Nomura has published its outlook on the pound, and it's not pretty.

Analysts at the Japanese bank cut their target for sterling to $0.975 by the end of the year, meaning they expect it to tumble below parity.

They pointed to the impact of the Government's tax cuts plans on inflation and debt, adding that today's slight recovery was likely fuelled by short-term profit taking.

Nomura wrote: "This is a fundamental balance of payments crisis, with politicians hoping it will eventually just calm down. Hope is not a strategy, and markets are reflecting that."

Here's a clear (albeit bleak) illustration of the bonds situations from Paul Johnson at the IFS, who warns the surge in gilt yields will cost billions.

"The magic money tree really does not exist," he says, in a clear broadside at the tax-slashing plans unveiled by Liz Truss and Kwasi Kwarteng.

Read more: Public borrowing costs soar as markets punish Kwarteng

This will cost billions. Economic and fiscal constraints are real. It’s not just “Treasury orthodoxy” or a failure of imagination. The magic money tree really does not exist. https://t.co/52pRCCftXS

— Paul Johnson (@PJTheEconomist) September 26, 2022

Well, the pound's recovery is complete (today, at least).

After crashing to an all-time low against the dollar of $1.0350 in Asia trading, it's now pushed back up above $1.09 – higher than when it started at the beginning of the day.

Expectations of an intervention by the Bank of England appear to be driving the rebound. 

Don't get carried away, though. The pound is still trading near its lowest since 1985, and economists have warned things could get worse if the Bank fails to calm markets with an intervention.

Also, gilt yields remain at sky-high levels, meaning government borrowing costs have soared. Given Kwasi Kwarteng plans to fund his tax cuts through borrowing, that could be the more pressing consideration for markets than the pound.

Were Liz Truss's tax cuts the biggest policy mistake ever? FX analyst Viraj Patel seems to think so.

He argues that the measures to cap energy bills are so far serving their purpose of keeping wholesale prices down and curbing inflation.

So the tax cuts – which were aimed at boosting growth but have sparked a market sell-off amid concerns about surging UK borrowing – weren't necessary, he argues.

The bizarre thing is that the energy price caps/intervention is doing what it needs (stopping gas prices from moving higher & curbing UK inflation). They really didn't have to announce tax cuts at the same time. Will go down as one of the biggest UK policy mistakes ever $GBP pic.twitter.com/b5LPB8NPb1

— Viraj Patel (@VPatelFX) September 26, 2022

Kwasi Kwarteng is keeping his lips firmly sealed about today's market turmoil.

It's an awkward walk to the office for the Chancellor as he's grilled by a BBC reporter in this classic of the genre...

Chancellor Kwasi Kwarteng declines to comment as pound hits all-time low against US dollar https://t.co/6Xn2KxVQzv pic.twitter.com/MeBY6Dn5GW

— BBC Politics (@BBCPolitics) September 26, 2022

Housebuilders were among the worst performers on the FTSE this morning as the pound languished near its all-time low.

Taylor Wimpey and Persimmon were the biggest fallers on the blue-chip index, shedding more than 6pc, while Berkeley and Barratt fell more than 5pc.

Retailers including B&M, Marks & Spencer and Currys were all in the red amid concerns about the economic outlook.

Meanwhile, companies that export a lot of their products outside the UK rallied. Consumer goods giant Reckitt Benckiser, healthcare group GSK and engineer Smiths were among the biggest winners.

Sir Paul Marshall, a hedge fund boss and major investor in GB News, has launched a blistering attack on Bank of England chief Andrew Bailey over his failure to act.

He wrote in the Financial Times:

The bigger problem for Liz Truss’s government is the Bank of England. It seems that the Governor, Andrew Bailey, did not get the memo.

Our central bank has been behind the curve since inflation first started to rise sharply in 2021. Initially the BoE was in good company. But now it is starting to lag its counterparts around the developed world.

The Bank of England effectively lost control of the UK bond market last Thursday when it raised interest rates by 50 basis points, instead of the 75bp that the Fed and the European Central Bank raised by. Its timidity is now having an impact on both the gilt market and sterling.

That is the essential context for the market reaction to the mini-Budget. Once you lose market confidence it is doubly hard to win it back.

This cannot be what Truss, and her Chancellor Kwasi Kwarteng, wanted at all. They had been hoping for and hinting at a more muscular stance from the BoE to underpin financial market confidence in the UK, even at the expense of some short-term pain.

The sell-off in UK assets since Kwasi Kwarteng's mini-Budget last week has pushed market losses on the Bank of England's government bond portfolio to more than £200bn.

The shortfall reflects the difference between what the Bank paid for gilts when it kicked off quantitative easing during the financial crisis in 2008, after the Brexit vote and when the pandemic hit, against the current market price, Bloomberg reports.

The bonds were already in the red, but the rout sparked by the Chancellor's tax-slashing Budget has made things much worse.

The collapse comes just before the BoE plans to begin unwinding its quantitative easing programme by selling gilts, meaning the losses will start to be crystallised.

The first sale in scheduled for next week, with a £40bn target over the following 12 months.

With markets in turmoil, Labour are trying to wrestle the mantle of fiscal responsibility away from the Tories.

Shadow Chancellor Rachel Reeves has taken aim at the Government for gambling with the economy, adding that Labour would pursue a responsible fiscal policy that provides funds for public services.

Speaking at the Labour Party conference in Liverpool, she said:

It is becoming clearer by the day that Labour is the party of economic responsibility and the party of social justice. It is time for a government that is on your side, and that government is a Labour government.

Here's one US economist's wry take on the outlook for the pound...

Which comes first, the NFL games in London or #GBPUSDParity? ???? pic.twitter.com/eHKtp5Hxqk

— Matt Weller CFA, CMT (@MWellerFX) September 26, 2022

With all eyes now on the Bank of England, traders have stepped up their bets on interest rate rises.

Markets are pricing in up to 200 basis points of rate rises by the next meeting in November. 

That would imply a big unscheduled rise – four times the size of its last hike – and would take interest rates from their current level of 2.25pc to 4.25pc.

Sterling has trimmed its losses against the dollar as markets gear up for a statement from the Bank of England.

The pound has risen by above $1.08 after tumbling to its lowest level on record earlier in the day.

It's understood the Bank of England is likely to make a statement today.

My colleague Tom Rees has broken the news that the Bank of England is preparing an intervention to help shore up the pound.

It is understood that an announcement today is probable, but not definite. The Bank declined to comment.

It doesn't look like the Chancellor will be making a statement today, as Downing Street declines to comment on the pound's dramatic fall.

The Prime Minister's spokesman said: "I think that the Chancellor has made clear that he doesn't comment on the movements around the market and that goes the same for the Prime Minister."

Instead, No 10 stuck by the Government's plans to boost growth.

The spokesman said: "The UK with the second lowest debt-to-GDP ratio in the G7 is investing in its future. That's through a growth plan while remaining fiscally responsible and committed to driving down debt in the medium term.

"The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus."

Downing Street also declined to say whether the Chancellor would be meeting with Andrew Bailey as a matter of urgency to discuss the sudden drop in the pound.

It comes amid speculation the Bank of England will be forced to again raise interest rates.

The spokesman said: "I know he speaks regularly to the Governor of the Bank of England. I don't know when the next conversation is scheduled to be."

The pair meet "regularly", the spokesman said. "I'm not aware of any change to that regular series of meetings that they have which the Chancellor set out over the weekend."

Wall Street's main indices look set to open in the red as jitters spread through the global economy.

Markets are expecting more interest rate rises by the Federal Reserve, fuelling fears that the US could be tipped into recession.

Futures tracking the S&P 500 and Dow Jones fell 0.8pc, while the tech-heavy Nasdaq was down 0.5pc.

Closer to home, the FTSE 100 has reversed its early gains and is now trading down 0.7pc.

Here's more from FX analyst Viraj Patel, who strikes a grim tone over the outlook for the pound if the BoE fails to intervene.

⚠️ My sense is the markets want BoE action in the next few days. Either stopping gilt sales or even pulling the trigger on an emergency hike. If we don't get that... then I fear for how low $GBP can go (Cable at parity is not a floor) https://t.co/9VvrDCs3mi

— Viraj Patel (@VPatelFX) September 26, 2022

The slump in the pound is a further blow to Brits at a time when households are already being squeezed, as my colleague Eir Nolsoe reports:

The cost-of-living crisis is whittling away pandemic savings, with monthly spending on essentials costing £145 more on average since the beginning of the year.

The spiralling cost of living is forcing three in ten Britons to rely on savings only to afford basic necessities like shelter, food and fuel, according to research by KPMG. Another one in ten have already depleted their reserves, and a similar share had none to start with. The findings are based on a survey of 3,000 of consumers at the start of this month.

It shows that half of Britons are already stretched beyond their means or have no funds to cushion against further price rises. Over a third of people who started 2022 with money to fall back on now only have a quarter or less of the initial amount left.

The figures suggest that pandemic savings are being wiped out by inflation eating into real incomes. Bank of England data shows that personal deposits surged during the lockdowns and consumer debt fell. Households on average put 26pc of their disposable income into savings between April and June in 2020, a record since the data series began in 1987.

​Read Eir's full story here

Calls are growing for the Bank of England to intervene urgently to help the ailing pound. But what options does Andrew Bailey have?

FX analyst Viraj Patel looks at some of the potential measures, but warns there's "no easy way out".

⚠️ What can the BoE do in a $GBP fiscal crisis? Emergency hike but markets will want >200bps (kills economy). BoE has small FX reserves pool. Treasury needs to instruct BoE to use theirs. Even jointly... reserves will run out in weeks. BoE thrown to market wolves. No easy way out pic.twitter.com/CIYAvn7aTi

— Viraj Patel (@VPatelFX) September 26, 2022

Investors have seen the pound fall to an all-time low against the American dollar, as fears mount that the new Government is pushing public debt in Britain to unsustainable levels.

However, DIY investors need not panic, as experts have said the weakness of sterling can be used to their advantage. This is because a lowly pound works in favour of a portfolio that is invested across global stocks.

For example, the S&P 500, America’s benchmark index, has fallen by 23pc in dollars this year. However, losses stand at just 4pc in sterling terms.

Lauren Almeida looks at how investors can maximise their returns when sterling is weak.

Read her full story here

The pound is BlueBay Asset Management's biggest currency short position as it bets the UK can do little to halt its slide.

Mark Dowding, chief investment officer of BlueBay, which manages $112bn in assets, said: "Short GBP is the largest FX short we have held this year. We are not changing this view and think that a move towards parity is likely."

The sharp slide in the pound has fuelled speculation that the Bank of England will need to step in to raise interest rates, but Mr Dowding said even that might not be enough.

He added: "An emergency rate hike would probably be a catalyst for a vote of no confidence in the Truss Government and would see political crisis.

"For now we think the Bank of England does nothing. The pound will weaken, but this should be more of a gradual slide."

With impeccable timing, the Bank of England has released details of the framework for this year's stress test on banks.

The Bank said the 2022 scenario will "test the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices and higher global interest rates, and a separate stress of misconduct costs".

The scenario assumes interest rates will surge to 6pc in early 2023 – an outcome that looks even more likely after the recent slump in the pound.

There's mounting pressure on Bank of England Governor Andrew Bailey to intervene after the pound tumbled to an all-time low.

Markets are now expecting the Bank to raise interest rates ahead of the next scheduled meeting in November, with traders pricing in around 75 basis points of increases by the end of the week.

That means there'll be a nasty shock if a rate rise doesn't materialise, with Samuel Tombs at Pantheon Macroeconomics warning of further losses if Bailey fails to act.

Read more on this story: Bank of England urged to raise rates as markets bet on 6pc by next year

Markets are pricing-in a c.75bp increase in Bank Rate before the end of *this week* (the one-week OIS rate was 73bp above the SONIA rate a few ago). Sterling will weaken further if Governor Bailey doesn't act (I expect he'll dither but let's see...)

— Samuel Tombs (@samueltombs) September 26, 2022

Labour leader Sir Keir Starmer has blamed the Government for the "real turmoil" in markets and warned working people would pay the cost.

Speaking at the Labour Party conference, he said ordinary Britons would have to endure higher mortgages and prices as a result of tax-cutting fiscal plans that have sparked a slump in the pound.

Sir Keir said: "The net result of Friday so far is taxes down for the richest and prices up for working people."

He added that the country was "very worried" about the message Liz Truss's Government was sending.

Investors see the Conservative as a "Doomsday cult", according to a top analyst at UBS.

In a note to clients this morning, Paul Donovan wrote:

The global signals from the UK’s mini-budget matter. Modern monetary theory has been taken into a corner by the bond markets and beaten up.

Advanced economy bond yields are not supposed to soar the way UK gilt yields rose.

This also reminds investors that modern politics produces parties that are more extreme than either the voter or the investor consensus.

Investors seem inclined to regard the UK Conservative Party as a Doomsday cult.

The pound sunk to an all-time low against the American dollar overnight, following Chancellor Kwasi Kwarteng's “mini-Budget” last week. 

Investors have become fearful that Prime Minister Liz Truss’s new administration is borrowing at unsustainable levels, pushing the pound to new lows. This has been compounded by strength in the US dollar, where investors are more optimistic. 

What does it mean when the pound drops, and how will it affect your wallet?

Here's Lauren Almeida with everything you need to know – read her guide here.

Labour has urged the City watchdog to investigate a potential leak of last week's mini-Budget amid concerns hedge funds have cashed in by shorting the pound.

Tulip Siddiq, shadow City minister, called for a probe by the Financial Conduct Authority following reports some hedge fund bosses made "small fortunes" by betting sterling would fall after Kwasi Kwarteng's statement on Friday.

She told the Evening Standard: “The Financial Conduct Authority should investigate any potential wrongdoing, to determine whether it is possible that any leaks or information provided by this Conservative Government to their wealthy friends contributed to the collapse of the pound.”

A report in the Sunday Times described a dinner of hedge fund managers, who allegedly supported the Government, about a week before the mini-Budget. They were said to be shorting the pound, with some making "small fortunes" from their bets.

There were also claims that the plan to abolish the 45pc additional rate of income tax had been leaked in advance.

UK government borrowing costs have soared above 4pc for the first time in more than a decade as a historic rout on bond markets in the wake of Kwasi Kwarteng’s mini-Budget deepens.

Investors continued to dump UK debt on Monday morning after being spooked by the Chancellor’s plans to ramp up borrowing to pay for £45bn of tax cuts and rising expectations of rapid Bank of England interest rate rises.

Tom Rees has the details – read his full story here.

Labour has accused Kwasi Kwarteng of "fanning the flames" of the plummeting pound by hinting at fresh "unfunded" tax cuts.

Shadow Chancellor Rachel Reeves accused ministers of recklessly gambling with the public finances and of spooking the markets with the "scale" of Government borrowing to pay for tax-cutting measures.

Over the weekend, Mr Kwarteng brushed off market reaction to his mini-Budget and suggested even more tax cuts could come.

Talking from the Labour conference in Liverpool, Ms Reeves told BBC Radio 4 Today: "It is incredibly concerning.

"I think many people had hoped over the weekend things would calm down but I do think the Chancellor sort of fanned the flames on Sunday in suggesting there may be more stimulus, more unfunded tax cuts, which has resulted overnight in the pound falling to an all-time low against the dollar."

The shadow Chancellor doubled down on her comparison of Mr Kwarteng and the Prime Minister to "two gamblers in a casino chasing a losing run" and warned they were betting with the nation's finances.

She added: "Here's the thing, they're not gambling their money, they're gambling all of our money, that's why it's irresponsible and reckless as well as being grossly unfair."

Mohamed El-Erian, an adviser to Allianz, has said the Bank of England should hike interest rates by one percentage point if Chancellor Kwasi Kwarteng doesn't reserve the measures in his mini-Budget.

He told BBC Radio 4: "If I were the Governor and the Chancellor is not modifying his plan, I would increase interest rates and not by a little, by 100 basis points, by one full percentage point to try and stabilise the situation."

The @BankOfEngland finds itself in a tighter spot:Wait for its November #MPC policy meeting and risk a possible worsening of the #inflation outlook and the functioning of #markets; OrImplement an intra-meeting hike to stabilize things at the risk of greater political pressure.

— Mohamed A. El-Erian (@elerianm) September 26, 2022

Chancellor Kwasi Kwarteng must do more to reassure markets about his plans for the economy after the pound's slump, a top adviser to Liz Truss has said.

Gerard Lyons, an external adviser to the Prime Minister, told Bloomberg: “He needs to reaffirm that tax cuts are only part of the story, not the full story. What they’re following is a supply-side agenda.”

However, Mr Lyons said the UK government didn't need do a “U-turn,” adding that it was also incumbent on the Bank of England to take action.

He said: “It’s not just down to the Chancellor, it’s also down to the central bank to try and get ahead of the curve, to try and address the market concern. We need to move away from cheap money.”

Mr Lyons, who is also chief economic strategist at online wealth manager Netwealth, said the Chancellor's fiscal package had been targeted at a domestic and business audience, but didn’t do enough to calm investors.

“Markets were still not convinced that his fiscal easing was necessary, non-inflationary and affordable. It’s quite clear from the market reaction that those concerns were not fully addressed.”

Talking of bargain hunting, a former hedge fund manager who shot to fame for making billions during the global financial crisis is buying up the pound at a discount.

Stephen Diggle used 10pc of the assets of a "small fund" to buy sterling, adding he would use the currency to finance investments in the UK, especially dollar-earning stocks.

He told Bloomberg: "I'm not calling a trading low. Who the hell knows? But against a 5- or 10-year average sterling is very cheap now."

Mr Diggle co-founded volatility hedge fund Artradis in 2001. It became famous for a $2.7bn volatility trading gain in 2007 and 2008.

After crashing to an all-time low in the early hours of the morning, the pound is started to claw back some of its losses.

The move comes amid expectations that the Bank of England will take a more aggressive approach to raising interest rates – and even make an unscheduled announcement ahead of November's meeting.

There could also be some bargain hunting going on as opportunistic traders look to buy up the pound on the cheap.

Aggressive GBP move overnight is being faded somewhat as European markets open. The retracement in the pound is coinciding with a substantially more hawkish BoE rate path and broad-based expectations of an inter-meeting rate hike from the sell-side. pic.twitter.com/LbBiaVPpgH

— Simon Harvey (@_SimonHarvey) September 26, 2022

Wendy Chamberlain, Liberal Democrat chief whip, calls for Parliament to be recalled so that MPs can scrutinise Kwasi Kwarteng's "failed" Budget.

Last week the Chancellor announced a shambolic Budget that gave huge unfunded tax cuts to big banks and the wealthiest while leaving struggling families and pensioners in the cold.

As a result we are seeing the pound plummet into free fall as the markets give the Conservatives a damning vote of no confidence. 

The Government must urgently recall Parliament so Kwasi Kwarteng can fix this failed Budget, before it does any more damage to our economy and people’s livelihoods.

It’s clear the Conservatives are totally out of touch and don’t have a proper plan to steer the economy through the difficult months ahead.

MPs must be given a chance to scrutinise these disastrous proposals now before it’s too late.

The latest slump in the pound makes it the worst performing G10 currency in the year to date.

It's now down 21.1pc against the dollar and is veering dangerously close to parity.

Other underperfomers among the G10 include the Japanese yen and Swedish krona, which are both down 19.9pc against the dollar.

At the other end of the spectrum, the Swiss franc and Canadian dollar are down only 7.1pc, making them the top performers.

Still, the figures highlight just how strong the dollar has been recently...

It's not just the pound that's in decline this morning – oil has also also taken a tumble.

Benchmark Brent crude fell below $85 a barrel for the first time since January, mirroring recent losses for West Texas Intermediate.

It comes amid mounting concerns over a global economic slowdown. 

Rising interest rates, Russia's invasion of Ukraine and continued Covid lockdowns in China have hit supplies and fuelled fears of lower demand.

Unsurprisingly, the focus is on the pound's fall against the dollar. It's now trading at its all-time low.

But the British currency has racked up losses across the board. In fact, it's currently down against every single other currency in the world, from the Albanian lek to the Zambian kwacha.

My colleague Tim Wallace explains the significance:

That is dire for importers – which is most of us, given the UK's significant trade deficit – but could offer a silver lining to exporters, who are finding their British-made goods becoming more competitively priced in every corner of the globe.

The FTSE 100 has held up in early trading despite the broader turmoil on markets.

The blue-chip index rose 0.4pc in early trading, clawing back some of its losses after Friday's sell-off as the slump in the pound boosted dollar-earning stocks.

Consumer staples including Diageo and Reckitt Benckiser pushed higher. Unilever, which also announced that boss Alan Jope will retire next year, was the biggest boost, rising 2.6pc.

Healthcare stocks AstraZeneca and GSK also gained.

Oil and mining stocks were in reverse, tracking crude prices lower.

The domestically-focused FTSE 250 fell 0.2pc.

Bond yields have jumped in early trading, pushing up the cost of Government borrowing as markets baulk at the UK's fiscal plans.

Yields on two-year gilts have surged 55 basis points to 4.5pc, while the 10-year is at 4.1pc.

The movements mean it's getting more expensive for the Government to borrow money – and that's at a time when the Government plans to ramp up borrowing to help fund its massive tax cuts.

Some economists have accused Liz Truss of acting irresponsibly with the public finances.

Shadow Chancellor Rachel Reeves has demanded Kwasi Kwarteng sets out "credible plans" after the pound sank to an all-time low against the dollar.

The Labour MP told Sky News:

This is a serious situation, a cause for concern. The Chancellor, instead of doubling down on his position on Friday, needs to now set out credible plans.

The FTSE 100 has edged higher at the open amid market turmoil sparked by Kwasi Kwarteng's tax-cutting Budget.

The blue-chip index rose 0.3pc to 7,040 points following a sell-off on Friday.

Investors have been selling off UK assets in the wake of last week's mini-Budget, but a weaker pound could help to prop up the internationally-focused FTSE 100.

The FTSE 250, which is domestically-focused, fell 0.5pc at the open.

The tumble in the pound could drive up the price of beer, a top brewing boss has warned.

Paul Davies, chief executive of Carlsberg Marston's Brewing Company, said the drop was "worrying" for the British beer industry, which imports beer and hops from overseas.

Asked if the value of the pound mattered, he told BBC Radio 4 Today:

Yes it does, many of the hops used in this country are actually imported and a lot of them, particularly for craft brewers, are imported from the States, so changes in currency is actually worrying for industry, for sure, and then of course people drink a lot of imported beers from Europe, and the euro vs the pound is also something we're watching very closely at the moment.

Of course things will rise, I would say as an industry we're generally using British barley and we're using a lot of British hops, but of course if you're drinking double IPA that requires a lot of Citra hop and other hops from the States, and at some point that is going to have to be passed through to both the customer and the consumer if prices are this volatile.

Traders are ramping up their bets on interest rate rises amid a crisis for the pound.

Money markets are now pricing in as much as 150 basis points of rate hikes by the next Bank of England meeting in November. That would take rates to 3.75pc.

Traders think the Bank will need to lift rates to 5.75pc by May. That would be the highest since 2007.

Paul Dales continues...

That said, even this second option may not be the end of it. We’ve entered the part of the currency crisis where psychology takes over.

That could mean the markets continue to test the Bank and the pound falls further, suggesting that the Bank has to have another go to assert its authority.

And from a political economy point of view, it would be difficult for the Bank to hike interest rates just days after the Government outlined its new economic policies. And of course, higher interest rates just make the sustainability of the government’s fiscal plans even more questionable.

A common thread here is that in all outcomes, the UK will face higher interest rates, continuing concerns about long-term fiscal sustainability and the gradual realisation that period of tighter fiscal policy will be needed further down the line. And all of that will weigh on the economy.