Economic Situation

Lord Davies of Brixton Excerpts

Thursday 13th October 2022 Lords Chamber

[Viscount Younger of Leckie (Con)]

The Treasury is working with the Bank of England to monitor the implementation of the operations that the Bank has decided to undertake and the potential risks that it may pose, as well as continuing to monitor wider market conditions. It is thought that the announcements on Wednesday 28 September and the very recent ones on Monday 10 October and Tuesday 11 October will allow enough to be done. As I say, this is to settle the markets and to ensure that there is an orderly exit, as planned, from this Friday.

[Lord Davies of Brixton (Lab)]

My Lords, I make no apology for continuing the points raised by the noble Baronesses from different sides of the House. Yesterday, there was a headline in the Times, “Threat to pension funds”. Today, a headline in the Daily Express is “Doom loop Friday—will BoE governor Andrew Bailey let financial system collapse tomorrow?”. So far this has been a crisis of liquidity. However, earlier in the week, the Bank of England told us that

“self-reinforcing ‘firesale’ dynamics pose a material risk to UK financial stability.”

This is what the Daily Express refers to as the “doom loop”, and the point about it is that you do not know how deep it will go. Therefore, it raises the issue of a threat to solvency and hence to members’ benefits. The problem is that I doubt the ability of the Bank of England, with its mixed messaging, the Pensions Regulator and the PPF, to sort this out. Is it not the Government’s responsibility and a reversal of their mini-Budget the only way to solve it?

[Viscount Younger of Leckie (Con)]

I probably answered the noble Lord’s question earlier by stating, as an observation, what the Bank has done. I mentioned the announcements made on those three dates. The Bank has also announced that it will stand ready to increase the size of its daily auctions to ensure that there is sufficient capacity for gilt purchases ahead of this Friday. It continues to work with the liability-driven investment funds and pension funds as they continue to build their financial resilience ahead of the end of the Bank’s intervention. This is very much as an observation about behavioural change and there are signs that this is working.