Ex-Bank of England governor Mark Carney slams Kwasi Kwarteng for ‘undercutting the financial institutions that underpin UK’ after his ‘partial budget and unfunded tax cuts’ caused the pound to plunge – and says BoE was right to step in and calm markets

  • Chancellor Kwasi Kwarteng’s budget promised £45billion in tax cuts last Friday 
  • But Mark Carney slammed it for coming ‘without the usual forecast attached’ 
  • He warned that people up and down the country will pay the price for its impact 

Former Bank of England governor Mark Carney has slammed Kwasi Kwarteng for ‘undercutting the UK’s financial institutions’ after the chancellor’s ‘partial budget’ sent the pound plummeting this week. 

Mr Carney said the mini-budget on Friday – which vowed a mammoth £45billion in tax cuts – came ‘without the usual forecast attached’, before warning it will be the British public that pay the price. 

It comes as a number of lenders have pulled hundreds of mortgage products over fears the Bank of England (BoE) will further raise interest rates to 6 per cent to counter the plunging sterling.   

The institution was yesterday forced to intervene and dramatically declared it will buy long-term government debt in a bid to ease the market chaos threatening to cause a financial meltdown, in what Mr Carney said was the right move.

Speaking on BBC Radio 4’s Today Programme, Mr Carney said: ‘The message of financial markets is that there’s a limit to unfunded spending and unfunded tax cuts in this environment, and the price of those is much higher borrowing costs for the government and mortgage holders and borrowers up and down the country.’ 

Mr Carney, who is currently the UN Special Envoy on Climate Action and Finance, accused Liz Truss’s government of working at crossed purposes with the country’s financial institutions, causing the on-going turmoil by failing to produce a full, costed budget. 

Former Bank of England governor Mark Carney (pictured) has slammed Kwasi Kwarteng for ‘undercutting the UK’s financial institutions’ after the chancellor’s ‘partial budget’ sent the pound plummeting this week

Mr Carney said the mini-budget on Friday – which vowed a mammoth £45billion in tax cuts – came ‘without the usual forecast attached’, before warning it will be the British public that pay the price (Pictured: Kwasi Kwarteng) 

Mr Carney said the system has taken a big knock, but that the BoE had taken the right step by intervening to calm the markets yesterday. 

He said it was concerning that the Treasury had chosen to announce a partial budget with no numbers, or forecast at a time of financial instability.

He added: ‘There was an undercutting of some of the institutions that underpin the overall approach, so not having an OBR forecast is much common to the plan and the government has accepted the need for that, but that was important. 

‘Working at some crossed purposes with the bank in terms of short-term support for the economy.’  

It comes as ministers are drawing up plans for billions of pounds in spending cuts to reassure panicked markets that public finances are under control – as PM Truss is set to break her silence this morning.

The UK’s giant welfare bill is facing a cut following a turbulent day in which the Bank of England made the shock and highly unusual move to declare it would be purchasing gilts in response to the ‘significant repricing of UK and global financial assets’ since Mr Kwarteng’s mini-Budget announcement on Friday. 

It has emerged that the extraordinary intervention was triggered by fears that otherwise institutions would have been crushed within hours – putting the whole system at risk.

Meanwhile, City minister Andrew Griffith said the £45billion package was ‘the right plan… to make our economy competitive’. 

But Cabinet ministers are understood to have privately raised concerns with Mr Kwarteng over the package of tax cuts. 

A member of Ms Truss’ new cabinet told The Times that the government got the timing wrong by announcing the cuts and spending reforms while inflation remains so high, adding that the ‘jury is still out’ on whether the PM can create a ‘strong narrative and vision’ to sell the measures.

Unease is growing among the party, with MPs including former minister Julian Smith and chairman of the Northern Ireland select committee Simon Hoare both calling for changes to the economic plan. 

But despite signs of Tory nerves, Downing Street and the Treasury remain defiant, saying there is no prospect of a change in approach.

And the Prime Minister will break her silence in a series of BBC Local Radio Stations later this morning.

Earlier, Mr Griffith denied that last week’s mini-Budget had sparked the slide in the pound and the turbulence in the UK Government bond market that pushed pension funds to the brink.

He said: ‘What is unprecedented is the level of volatility we have seen in all developed markets.’ 

The Treasury has confirmed that Government departments will be asked to identify billions of pounds of savings to help convince the markets that ministers are serious about keeping the UK’s debts under control.

There was also speculation that the Treasury could trim the UK’s giant welfare bill to save money. Ministers will also fast track ‘supply side reforms’ designed to cut regulation and boost growth.

A Downing Street source voiced frustration at the market reaction, saying that 90 per cent of the cost of recent interventions was accounted for by the schemes to freeze energy prices for households and businesses.

The moves followed an unprecedented intervention by the Bank of England to buy UK Government debt ‘on whatever scale is necessary’ to try to restore calm as market turbulence threatened the financial health of final salary pension schemes.

It comes as borrowers may have to prove they can afford interest rates of as much as seven per cent to secure a mortgage offer as lenders continue to pull deals from sale amid the volatile market.

The base rate is expected to peak at 5.5 per cent next spring, causing knock-on effects for potential homeowners because banks are required to test whether borrowers can afford a mortgage at a percentage point above future expectations of the rate. 

It would mean borrowers having to prove they can afford mortgage rates of 6.5 or seven per cent.

Repayments at seven per cent interest on a £200,000 mortgage would equate to £1,331 a month, or £2,661 for £400,000 – assuming a 30-year mortgage.

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