40% of mortgage deals pulled since mini-budget; financial markets in turmoil – as it happened | Bonds

More than two-fifths of Britain’s mortgage deals have been withdrawn from the market since last Friday’s mini-budget, which brought chaos to the market. The package of £45bn of unfunded tax cuts and likely borrowing binge sent the yields on government bonds soaring and raised expectations that the Bank of England will be forced to raise its base rate to 6% by next summer. Experts have warned that house prices could crash up to 20% next year.

The prime minister, Liz Truss, and the Treasury’s no 2, Chris Philp, both did a round of broadcast interviews this morning to defend their economic plans, but their comments have failed to restore investor confidence. The pound has now recovered in volatile trading but stocks have sold off and government bond yields are rising again, increasing government borrowing costs.

The former governor of the Bank of England Mark Carney has accused Liz Truss’s government of “undercutting” the country’s economic institutions and working at “cross purposes” with Threadneedle Street.

Our other main stories today:

Next’s chief executive has warned the UK could be heading for a second cost of living crisis next year as the slump in the value of the pound drives further price rises.

Thank you for reading. ‘See you’ tomorrow. – JK

Wall Street has opened lower, with the tech-heavy Nasdaq tumbling 2% and the Dow Jones losing 1.1%, as investors fret about the global economic outlook.

US GDP fell 0.6% in the second quarter, as expected, the final estimate confirmed.

The pound has staged a recovery against the dollar, reversing earlier losses, and is now trading 0.78% higher at $1.0975, while the euro is flat against the dollar at $0.9728.

Stock markets in Europe are still deep in the red. The UK’s FTSE 100 index has lost nearly 2% and has fallen 136 points to 6,867, while Germany’s Dax has fallen 1.5%, France’s CAC has slid 1.3% and Italy’s FTSE MiB has tumbled 2.6%.

UK government bond yields have risen again today, after yesterday’s emergency intervention by the Bank of England to stabilise the bond market led to a sharp drop in yields. The yield on the benchmark 10-year gilt is up 12 basis points to 14.13% while the 30-year yield is at 3.9% – after rising to 5.5% before the Bank’s intervention on Wednesday.

In Germany, inflation climbed to 10.9% last month, the highest level in more than a quarter of a century.

The rise in consumer prices, harmonised to make them comparable with inflation data from other EU countries, was driven by a 43% jump in energy prices, after a cheap rail ticket offer and a fuel tax cut expired at the end of August. It was the highest HICP figure since comparable data started in 1996.

Germany’s non-harmonised measure of inflation in September rose to 10%, the highest since the early 1950s.

The figures came after a forecast by a leading group of think tanks that painted a bleak picture for Germany’s economy.

According to the think tanks’ projections, the crisis in the gas markets, spiralling energy prices and a massive drop in purchasing power will push the German economy into recession.

The high cost of energy was the leading factor “driving Germany toward recession,” said Torsten Schmidt, head of economic research at the RWI think tank.

Sir Martin Sorrell, founder and chairman of the media company S4 Capital, has predicted a “bathtub” shaped recession for the UK, with two difficult years in 2023 and 2024.

While he broadly welcomed the government’s growth strategy, he said the timing was wrong. He added that the corporation tax change (rather than rising to 25% from April 2023, the rate will remain at 19% for all firms) will not encourage investment, as long as there is heightened uncertainty over the UK’s future.

He told Sarah Montague on BBC radio 4’s World at One:

I don’t think rates of tax necessarily determine whether people invest, it’s certainty or uncertainty that makes you invest and the environment partly as a result of his statement on Friday and what he said over the weekend that there might be other unfunded tax reductions… has created even greater uncertainty. The issue of uncertainty is the real issue. Businesses will gust go on strike, they won’t invest until they see some clarity and we’re not going to get clarity for the next few weeks: no parliament, the Conservative party conference coming up…

This is just like the CEO and the CFO of a company coming up and saying: my revenue’s down, my costs are up and I have no specific plan for dealing with it, just leaving the shareholders in limbo. Unfortunately the shareholders only vote at times of elections so we have to wait for two years to see what the result of this is.

There will be falls in employment [in part] as a result of this [the mini-budget].

Asked about the likely shape of the recession, Sorrell said:

This is a bathtub [recession]. What we’re going to see 2023 and 2024 are difficult.

(Simon Johnson, former chief economist for the International Monetary Fund, has said that a U-shaped recession is like a bathtub: “You go in. You stay in. The sides are slippery. You know, maybe there’s some bumpy stuff in the bottom, but you don’t come out of the bathtub for a long time.”)

Sorrell went on to explain:

We’re in a difficult place. I don’t think we’ll see a recovery until the US presidential election in 2024. What I think the government has done here is gamble politically that by the general election in the UK in 2024 there will be some growth and that will bail them out. That is a heck of a gamble, particularly if you don’t have a fiscal plan.

Forty-one per cent of mortgage products have been taken off the market since Kwasi Kwarteng’s mini-budget last Friday, which sparked panic in financial markets, and expectations of a jump in the Bank of England’s base rate to 6% by next summer.

A further 321 products were withdrawn overnight, on top of the record 935 pulled…