Pound recovers after battering and UK dodges recession after mini Budget spooked markets

LIZ Truss got a double dose of better news yesterday as the pound recovered and figures confirmed the UK had dodged a recession.

Sterling had another rollercoaster as a morning rally was dashed by the Prime Minister and Chancellor confirming markets would have to wait until 23 November for the costing and economic forecasts of their budget.

By the afternoon sterling was back up to $1.11 as it recovered from Monday’s tumble to its lowest ever $1.03. It is now back to the level before Kwasi Kwarteng delivered his “mini Budget” and spooked markets.

The pound was partly supported by the Bank of England buying another £1.2 billion of government bonds yesterday after its dramatic intervention to calm money markets on Wednesday.

There are signs the Bank’s actions are working as interest payments, or yields, on 30 year government bonds have retreated from 5% to 3.9%.

However, shorter term bonds are still close to record highs at 4.5%.

Yields rise on government debt when bond prices fall because investors think they are riskier and want more in return for owning them.

A rapid jump in yields almost toppled pension funds owning £1 trillion of government debt before the Bank stepped in.

Gilts are essential to the economy because they are linked to mortgages and other borrowing.

The volatility has led to banks pulling two fifths - or more than 1,600 - of mortgage products.

This has prompted the City watchdog to contact lenders to ask how they will help homeowners who will struggle to remortgage if interest rates jump.

Figures on Friday also showed that the UK had actually grown 0.2 per cent in the three months to June, despite gloomy predictions from the Bank, Chancellor and economists.

This means that the UK is not technically in recession because a downturn is classed as six months of shrinking growth.

London’s FTSE 250, the index of mid-sized British companies also rose by 377.94 to 17,168.34 points after suffering its biggest fall since lockdown this week.

The FTSE 100 also rose up 12.22 to 6,893.81, although it is still at the lowest point in 14 months.