Bank of England governor Andrew Bailey said the UK is facing a “hangover effect” from the financial turmoil seen during Liz Truss’ time in 10 Downing Street.
Following a sharp fall in the pound and a surge in mortgage rates stemming from September’s 'mini budget', senior Bank officials met ministers yesterday to update on the UK’s financial stability.
Bailey said: “It's going to take some time to convince everybody that we're back to where we were before.
“Not because I doubt the current government, I am not trying in any sense to be negative. Obviously, there is something of a hangover effect."
He added that he believed the period of financial instability, which involved a huge effort from the BoE to calm the markets, was now over.
According to Bailey, foreign investors offloaded more UK bonds than they bought between September and November but these numbers had started to balance out, indicating a slight return in confidence.
He added this would likely take "a bit longer to work its way through".
The mini budget had promised a package of tax cuts, but failed to explain how they would be funded and has subsequently been overhauled by chancellor Jeremey Hunt.
The Bank of England concluded its emergency intervention last week, which began after the mini budget and saw it sell back some £19.3bn worth of gilts to the market, reportedly turning a profit of £3.8bn in the process.
In a letter to the chancellor, Jeremy Hunt, yesterday, Bailey said the bank’s intervention "was successful in restoring market functioning" and giving pension funds using liability-driven investments (LDIs) "time to build their resilience in the near-term to future volatility in the gilt market".
He said that "further work will need to be done in the coming year" to determine lessons learned from the episode.