What is the lasting impact of Liz Truss and Kwasi Kwarteng’s mini-Budget? According to Andrew Bailey, the governor of the Bank of England, the big implications for monetary policy have come and gone. Speaking to the Treasury Select Committee this afternoon about the UK’s financial security, Bailey noted that the spike in both gilt yields and interest rate expectations last autumn have since fallen, with the former back to a ‘normal area of distribution’ and the latter having ‘seen correction’ as ‘new fixed mortgage rates’ have ‘come down.’
External member of the financial policy committee Jonathan Hall chimed in too, insisting that it ‘doesn’t look as though there was any sort of permanent damage done at the end of last year.’ This echoed the governor’s assessment that ‘we’re back to where we were…things restored to normal.’
Bailey and Hall’s comments reflect what The Spectator’s data hub has been tracking for months: market expectation for where interest rates will peak. Indeed, those predictions have fallen substantially since the mini-Budget was announced, from over 6 per cent right after the announcements, down to 4.4 per cent now (hovering right where expectations were days before Kwarteng’s announcements).
This relatively fast return to market stability won't give much comfort to those who locked in a higher fixed mortgage rate last year. But the Bank’s broader point about renewed financial security is reflected in the data, with global markets calming down as soon as new leadership entered Downing Street.
You could tell in today’s session that it brought Bailey all sorts of joy to mention this, voicing his hope, and confidence, that ‘a period of stable UK economic governance’ is now underway. But it’s a reminder, too, that the BoE is telling one side of not simply a story, but a feud,