James Kirkup James Kirkup

Liz Truss’s fate rests with the Bank of England

Liz Truss (Credit: Getty images)

James Carville, an ostentatiously aggressive adviser to Bill Clinton, once said that when he died, he wanted to be reincarnated ‘as the bond market – you can intimidate everybody’.

Carville and Clinton had learned something that a lot of people in UK politics seem to be overlooking. The bond market, where government loans (gilts, in the UK) are traded, can decide what governments can – and cannot – do. It can also determine whether governments survive.

But because bonds are boring and a bit complicated (yields go up as prices go down – what does that even mean? And what on earth is a yield curve?) they don’t get enough attention. The value of sterling is an easier concept to grasp, so it’s been getting more attention of late, but bonds matter more to Liz Truss and the electorate.

Two weeks ago, the people and institutions that own gilts started selling them, fast. That meant gilt prices fell and yields rose. Those yields help determine how much it costs everyone – households and companies – to borrow money. The increase in those yields is the reason a fixed rate mortgage now tends to come with a 6-something per cent handle, rather than 4-something.

The effect of higher mortgage rates will act like a rolling artillery barrage on household finances and Conservative poll ratings for months to come. That’s because every day, a few thousand more mortgage-holders hit the end of a fixed-rate term and have to agree a new deal.

The Bank of England is now all that stands between her government and another grievous beating from the gilt market

Quite a lot of people now seeking a new rate were previously paying 2-something per cent interest on their home loan. Guess how they might feel about 6 per cent?

To be more precise about numbers here, the indispensable analyst Neil Hudson calculates

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