The cliff edge looms for the UK’s financial system

theguardian.com:

Britain’s financial system is approaching a cliff edge. After stepping in to calm the market chaos that followed Kwasi Kwarteng’s mini budget, the Bank of England has insisted it will close the £65bn emergency scheme used to smooth over the mess.

From Friday, the central bank plans to halt its rescue purchases of UK government bonds, in a market where funds managing the retirement savings of pensioners across the country still risk being dangerously burned.

It is a big gamble, to say the least, given the magnitude of the financial, economic, and political bind that Britain is in.

“The good outcome is that the government and the Bank seek to, and successfully regain, investor confidence. At the moment we look some distance from that,” said one City fund manager.

It comes in a crunch week when both Kwarteng and the Bank’s governor, Andrew Bailey, are out of the country at the annual meetings of the International Monetary Fund in Washington. Tensions were already high before the trouble began, after Liz Truss used the Tory leadership race to throw shade on the Bank’s inflation-fighting record.

When arriving for the gathering of the world’s finance ministers and central bank chiefs – in which Britain’s mini-budget meltdown has become a central part of the show – Kwarteng was asked for his view on the end of the bond-buying lifeboat scheme this Friday. It was a decision for the Bank, he said. But there are risks for both men in the crisis; in which the government, Bank, the finance industry, and global economic trends have all played a part.

Kwarteng’s mini budget is widely seen as the trigger which set off a “doom loop” in bond markets last month as pension funds became snarled up in complex derivatives they had bought to guard