One is political. Say things are going to be terrible and when they turn out to be merely rather bad, everyone is relieved. The other is financial. By warning that the Government will tighten fiscal policy they take pressure off the Bank of England to tighten monetary policy. Both would damp down the economy, so if you are going to clobber it with higher taxes, you don’t want also to hit it with higher interest rates – or at least not that much higher.
Savers matter too, and financial conditions have to be fair to both borrowers and savers. Now the people who provide the money have the prospect of getting a better return on their cash, maybe still too low but at least not the derisory interest that banks have been paying for years. The other piece of news to look for from the Bank of England will be what more it says it will do to reverse quantitative easing .
It made a start on Tuesday, the first major central bank in the world to do so, seeking bids for £750m of various short-dated securities. It was a success, in that the offer was covered more than three times. So that shows that at the present yields, short-dated gilts are an attractive asset.Indeed, it seems that yields are now lower than they were before the Truss/Kwarteng mini-Budget that caused all the trouble in the first place.