Market turmoil continues amid Bank of England confusion

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13th October 2022

Bite-sized business news from the UK and beyond

Good morning While the cost of living crisis is beginning to bite for millions of households, for the super-wealthy it remains very much business as usual. Yesterday LVMH, the world’s biggest luxury group and owner of brands like Louis Vuitton and Dior, reported a 19% jump in quarterly sales to €19.8bn.

Today's stories

Market turmoil continues amid Bank of England confusion
Lego enters the education market

ECONOMY
Market turmoil continues amid Bank of England confusion

What happened?
Yesterday was another volatile session for financial markets after the Bank of England confirmed its emergency bond-buying scheme would come to an end this week, following rumours that it could be extended.

How did we get here?
The Bank of England stepped in last month after the government’s “mini” budget sent the value of bonds, aka gilts, tumbling and their interest rate, aka yield, soaring. This prompted a cash crisis for pension funds who are major holders of gilts.

The Bank’s intervention was due to end tomorrow but yesterday the Financial Times suggested officials had briefed pension funds that it could be prolonged.

Then the Bank quickly knocked that back and the confusion sent the pound back below $1.10 for the first time this month.

The emergency scheme has yet to calm markets
Investors continue to sell-off UK government bonds sending yields higher which not only make borrowing for pubic services more costly but also makes new mortgages more expensive.

The yield on 30-year gilts broke 5% for the first time in more than 20 years, well above the level that triggered the emergency intervention a fortnight ago. And the 10-year yield was at its highest since 2008.

So what can be done?
If the Bank sticks with the original plan and stops buying bonds tomorrow then yields could go even higher causing more economic pain. But if it does a U-turn then its reputation and credibility will be damaged.

Elsewhere there was more bad news for the economy…Official data showed the UK economy unexpectedly shrank in August, by 0.3%, implying it is likely to enter a recession before the end of the year. The fall in GDP was driven by a sharp decline in manufacturing (-1.6%) and a small contraction in services (-0.1%). Analysts expect a recession to into 2023, driven by the cost of living squeeze and higher interest rates.

Other stories to keep you in the loop

Cabinet minister says market turmoil not due to mini-budget
Royal Mail workers set to walkout in fresh strike over pay and conditions
Netflix to reveal for first time how many people watch its shows in the UK
M&S to close one in four bigger stores selling clothing and homeware
GB News loses half its value after sale

RETAIL
Lego enters the education market

What happened?
This week Lego’s owner announced it would buy US education firm Brainpop for $875m. This marks the first move into digital learning for the world’s largest toy company.

Brainpop’s educational animated videos reach 25m children annually, which will help Lego expand its educational toy set business.

Lego has made 15 small investments in education-technology companies in the past five years, part of the company’s expansion beyond traditional plastic bricks. Earlier this year, it invested about $1bn into Epic Games - the company behind the massively popular video game Fortnite—to spur its attempts to build up the metaverse.

Why it matters: Children today spend an increasing amount of time on their screens, but well-designed content with educational goals can make screen time a more enriching experience.

Yes, but: Amid a teacher shortage and pandemic-related lockdowns, schools tripled down on-screen use, which (in excess) is linked to physical, social and attention problems in kids.

Bottom line: Moving beyond toys sets, Lego stands to benefit from an education industry that is expected to be worth $2tr by 2025.

Stat of the day

Energy bill fears have sent Tesco sales of air fryers up 200% and electric blankets up 500%

Interesting links from around the web

Why this actor is the 'most beautiful woman in world' according to science
Why hybrid work is emotionally exhausting
The world's coolest neighbourhoods

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Market turmoil continues amid Bank of England confusion

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