Chancellor's plan is the right one despite turmoil, government says

Parliament isn’t currently sitting because it takes a break at this time of year for the political party conferences.

Labour’s is now over – and leader Sir Keir Starmer is calling for MPs to be summoned back to Westminster immediately in light of the fallout from the government’s mini-budget.

Number 10 says clearly parliament won’t be recalled.

But that means the Conservative party conference will go ahead against this tumultuous backdrop – with all eyes on the big speeches by the chancellor and prime minister, who’ve so far not said anything publicly this week.

An Office for Budget Responsibility (OBR) forecast on the government's mini-budget needs to be brought forward to happen "as soon as possible", says the chair of the Treasury Select Committee.

Tory MP Mel Stride told BBC Radio 4's PM programme that the OBR should have been "brought in earlier" to make "an independent assessment of how realistic" the government's tax cut plans were.

The OBR is a Treasury-funded body that is obliged to produce independent economic forecasts twice a year - usually accompanying the Autumn Budget and Spring Statement - but can also issue forecasts for unscheduled or emergency economic announcements.

The Treasury refused to publish one to accompany the chancellor's statement last Friday, a move which many have criticised.

Stride added that it was "urgently important" that the government "comes forward at the earliest possible time" with a forecast and a target for government debt to reassure the markets its plans are "credible".

You've probably been reading these words a lot on our page today.

The government is funding its plans with borrowed money - money that it raises by selling bonds.

A bond is a promise to make a payment in the future. It's effectively an IOU note that can be traded in a financial market.

So, a buyer of a government bond (known in the UK as a gilt) is buying some of the government's debt.

With most bonds, the seller agrees to make regular interest payments until the repayment is made in full - hence the appeal to the buyer.

Gilts are particularly attractive because they are seen as very safe, with little risk that the money won't be repaid.

They're mainly bought by financial institutions, such as investment banks and pension funds.

One of the reasons that the Bank of England stepped in earlier to buy gilts on a temporary basis was that market turmoil had caused a huge drop in the value of investments held by pension funds.

Flower wholesaler Jeff Large says he's seen a decline in business over the last two to three months, putting him in the worst situation he's experienced during 28 years in the industry.

He owns Birmingham Landscape Plants And Flowers Ltd and imports all his products from abroad, saying the weak pound and a poor exchange rate will hit him hard.

That's bad news for Jeff's customers - garden centres, green grocers, corner shops and the public - as he'll have to pass the cost on to the consumer.

"We've got to put our prices up and people out there don’t have more money to spend," he says.

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"Demand is definitely going down. Everything is dictated by a price. It’s all cost, cost, cost."

On top of rocketing energy bills and high fuel costs, he's worried about the future.

Jeff says there was a "feel-good factor" to working in the industry 20 years ago, when making sales was relatively easy. But he says the job is a "lot harder" now, as flowers have doubled or even tripled in price.

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Rob GillCopyright: Rob Gill

Rob Gill, managing director of Altura Mortgage Finance, says his firm has received double the calls it normally receives in the past couple of days, with most customers looking to lock down mortgage deals as soon as possible due to increasing interest rates.

He describes the situation as a "standoff" with some lenders pulling out entirely.

“The problem right now is the pace of change," he explains.

"Mortgage rates have risen 2.5% to 3% since the end of last year. At that rate of change, the mortgage and property markets have coped well.

"In the current environment however, it looks like we might get a similar rise within a few days. That’s very different and, if prolonged, would likely cause a crash in house prices.

"As a broker, I am looking at my emails to see what the rates will be. There may not be much we can help out with right now.

"Either lenders will come back with rates which are achievable or, if they come back with rates at 5% or 6%, clients might not want to buy that property with that interest rate," he says.

Kate Fuller, business principal at Mortgage Advice Bureau in Crawley, says the environment for brokers at the moment is "stressful".

"It is very fast-paced and it has ramped up," she says.

"There is a little bit more urgency, normally we ask people for things and it comes in dribs and drabs.

"The team is personally invested in getting the best rates for their clients - it is hard for us to go back and say that rate has gone."

Usman AhmadCopyright: Usman Ahmad

When Usman Ahmad, his wife and two children moved into their house four years ago they thought it would be their "forever home".

But he's worried higher interest rates may mean they can no longer afford to stay there.

When the family bought their house in Manchester in 2018, Usman says they fixed the mortgage at 2.05% for five years with monthly payments of £927.

Usman, a 33-year-old self-employed courier, says if he took out a fixed-rate mortgage today he would be facing monthly payments of more than £1,250 a month.

"I'm thinking if that's now, what are the rates going to be like in nine months' time when I have to take out a new deal?"

On top of rising energy and food prices, the higher borrowing cost could be the last straw, he says.

"I'm worried about defaulting on the mortgage and losing the house."

Read the latest on mortgages here.

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We recently reported that government departments will be asked to make cuts to help balance the budget.

Earlier today, Paul Johnson, from the independent Institute for Fiscal Studies, predicted that Chancellor Kwasi Kwarteng could end up freezing spending on public services to help get the economy under control.

Johnson told BBC Radio 4: "The difficulty the government has got itself in is that it is cutting taxes so dramatically, without any kind of plan of what it is going to do on public spending."

He said this would pose a challenge for the chancellor ahead of the Budget he plans to deliver in November - and speculated that Kwarteng could freeze spending for several years.

But Johnson added that "a decade of austerity" raised questions of whether such a long freeze would be "credible".

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Earlier, the Bank of England said it would step in to calm markets after the government's tax-cutting plans sparked a fall in the pound and caused borrowing costs to surge.

But what was the cause of this intervention?

One of the principal reasons the Bank was forced to step in was that market turmoil placed significant pressure on pension funds, which often invest in government bonds because these are usually so stable.

So-called liability-driven investment funds - which support schemes by ensuring they have enough assets to pay out on people's pensions - were facing a collapse in the value of the bonds they hold.

This in turn could have forced them to rush to sell other assets to cover the money they owe, sparking yet more market panic.

However, industry group the Pensions and Lifetime Savings Association has said that pension schemes are "long-term investors and moments like this come from time to time".

"While this is a complex situation as there has been a lot of volatility in the gilt [a term for government bonds] markets in recent days, we would not expect any significant issues for savers," Joe Dabrowski, deputy director of the association said.

Nevertheless, he said there will be "some operational challenges" in the short term.

Read more here.

The pound has managed to recover ground after another volatile day - let's catch up with the main developments:

• The Bank of England said it would step in to calm the markets after the government's tax-cutting plans sparked a fall in the pound and caused borrowing costs to surge
• It will start buying government bonds at an "urgent pace" to stabilise their value
• The market turmoil put pressure on pension funds, which invest in government bonds because they are usually so stable
• But a Treasury minister insisted the government's plan to cut £45bn in taxes was the right one, and said all economies were seeing volatility due to the war in Ukraine
• The pound has been volatile all day, but rose after the Bank's intervention
• Government departments will be asked to make cuts amid the financial turmoil, the BBC has been told
• The International Monetary Fund openly criticised the UK government over its tax-cutting plans, warning that the measures are likely to fuel the cost-of-living crisis

Investors and companies around the world are "wondering what on earth is going on in the UK", according to a former Treasury minister.

Lord O'Neill, a crossbench peer who served under David Cameron between 2015 and 2016, told BBC Radio 4's PM programme the government needs "breathing room" and should "seriously think what on earth is it really trying to do".

Quote Message: This idea that you can just magically quadruple productivity by a tiny corporate tax policy reversal is at the core of why investors and companies all over the world, never mind here at home, are wondering what on earth is going on in the UK."

This idea that you can just magically quadruple productivity by a tiny corporate tax policy reversal is at the core of why investors and companies all over the world, never mind here at home, are wondering what on earth is going on in the UK."

Treasury sources insist the government was right to announce its mini-budget in the way it did, saying that energy bills had to be capped urgently and that intervention will reduce inflation.

They defend the tax cuts, saying no other country is raising taxes right now.

There are many announcements still to come on business deregulation including childcare, planning and digital.

And government departments are being written to to ask them to identify savings (spending cuts).

But the issue for many Tory MPs is that the costing of the whole package won’t be announced for weeks, and they don't want to wait until 23 November to hear it.

Inept, humiliating, naive and reckless are just some of the words that have cropped up.

Read more off-the-record reaction from Tory MPs here.

The weakened pound has rallied more than 1% against the dollar, taking its value to $1.0843.

It comes after the Bank of England said it was stepping in to calm the markets earlier.

In today's early trading, the pound fell to $1.0634 following criticism of the UK's mini-budget from the International Monetary Fund (IMF).

On Thursday, before the government's announcements, the pound was at $1.1263. It briefly collapsed to a 37-year low of $1.0327 on Monday.

Take a look at how sterling has fared today below:

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You can track the market data here.

Some more now from Andrew Griffith, the Financial Secretary to the Treasury.

The government is not responsible for the turmoil in markets, the minister insists.

Griffith says: "We are seeing the same impacts of Putin's war in Ukraine cascading through things like the cost of energy, some of the supply-side implications of that."

Griffith says the war is impacting "every major economy", and that other countries are also experiencing rising interest rates.

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Economist and former Greek Finance Minister Yanis Varoufakis says he fears UK Chancellor Kwasi Kwarteng "is going to make a bad thing worse" and cut public spending rather than reverse tax cuts.

Speaking to the BBC earlier, Varoufakis said the International Monetary Fund and America's central bank were worried the UK "may trigger a financial crisis" by doing to America and other wealthy nations what "Greece did to the Eurozone".

Greece was severely affected by the 2008 financial crisis, and received huge bailouts in order to tackle its debt crisis.

Varoufakis, a former member of the left-wing Syriza party, resigned in July 2015 after six months as finance minister over the eventual bailout conditions.

“The particular focus of the concern... is the impact that the destabilisation of the markets in Britain will have on the US treasuries, in other words on the public debt of the United States," he said. "Because that kind of domino effect would have quite severe repercussions for the whole world."

He told BBC Radio 4's World at One programme that the Bank of England knew it needed to push interest rates up to stabilise the market, but that this could break the housing market "like a toy".

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Thanks for sending in your questions about the UK's economic turbulence - which our experts have been answering this afternoon.

Here's a brief recap of what's been happening today:

• The Bank of England announced it would step in to calm markets by buying government debt to stabilise the economy
• The value of the pound fell to $1.0560 after the news, down 1.6% against the dollar - but it has since bounced back to this morning's levels
• The Treasury has confirmed that Chancellor Kwasi Kwarteng met investment banks this morning and reiterated the government's "commitment to fiscal discipline"
• On Tuesday, the International Monetary Fund (IMF) criticised the UK government over its plan for tax cuts, warning that the measures could further fuel the cost-of-living crisis
• Labour leader Sir Keir Starmer and SNP leader Nicola Sturgeon have said the government should recall parliament to address ongoing market turmoil

Nick asks whether rising mortgage costs are going to outstrip the benefits from the £45bn of tax cuts announced by the government in the mini-budget?

It is a fair and good question. The reality is most homeowners won’t earn enough for the tax cuts to offset rising mortgage costs.

To give you an idea, the changes to income tax, together with the reversal of the 1.25% increase in National Insurance would result in an annual saving of £5,220 for someone earning £200,000, dropping to £392 for a middle earner with a £30,000 salary.

The recent 0.5% hike in the Bank of England base rate to 2.25% and the spectre of further increases in the near future mean some homeowners are facing a significant increase in their monthly mortgage repayments.

It is important to have a look at your finances to determine how the developments in the money market affect your finances and the steps you can take to mitigate the impact (if any).