Words by ITV News Producer Connor Parker
The dizzying world of the British economy in recent days has left many people concerned, but also confused as to what it all means - and that only got worse on Wednesday after the Bank of England's dramatic intervention.
The Bank's move to step in and calm the chaos in financial markets follows turmoil for the pound and UK government bonds caused by the chancellor’s tax-cutting mini-budget - but what does it all mean?
The financial markets play a large role in the economy of the UK, and have a huge impact on daily life, but they can be difficult to understand and when reading information about them it can often feel like reading a different language.
Here ITV News will break down what has happened recently and explain what it means for you.
First, let's explain the two key terms that have been in the headlines over the past few days.
What are the key terms you might be hearing in the news today?
A bond is a loan, you can almost leave it at that.
Just imagine X lends Y an amount of money, Y will pay X interest on that loan until they have repaid their sum in full plus interest.
Bonds have maturity rates which means the contract will state an exact date the bond must be repaid or risk default.
Investors buy bonds and trade them based on their interest rate and perceived risk expecting a secure return on their investment.
If the bond is risky (such as if the organisation issuing the bond may struggle to repay it in full) then the interest rate is higher, meaning more profit for the seller.
Governments issue bonds to fund their borrowing, these are usually bought by foreign investors, the national bank, and pension funds.
UK government bonds are known as gilts and normally have very low interest rates compared to others because investors believe the government will always pay them back.
So when you see talk of the deficit or the government spending billions paying for the pandemic, what they are doing is selling gilts at a reasonably low-interest rate to pay for their gap in income and spending.
If you see the word gilt just think it is government debt.
What has the Bank done?
On Wednesday the Bank announced it would buy government gilts to calm the financial markets as the interest rates on gilts began rising sharply.
If you're wondering where the Bank of England (BoE) gets this money from, they are simply creating more pound sterling and using it to fund the government.
The process of national banks buying their own government's bonds through printing more money is called Quantitative Easing and has been used across the world since the 2007-08 financial crisis to keep their economies on track.
However, economists have long warned that just inventing more money will lead to inflation.
For more than a decade Quantitative Easing impacted inflation less than economists predicted, but for a variety of reasons, we are now at a time of record inflation.
The BoE had actually planned to scale back Quantitative Easing this very week in order to try and get inflation under control, but instead they have completely reversed course and gone the other way.
What does this mean for you? Well, everything is up in the air right now and none of it looks good - the most likely answer is more inflation.
Why did the Bank step in?
If you're wondering why the BoE felt like it needed to take drastic steps to stabilise the economy at the risk of more inflation when inflation is already the biggest issue then you're not the only one.
First of all, high interest on gilts is very bad for the British economy, especially at a time the government has just announced a giant spending programme to deal with the energy crisis and large unfunded tax cuts.
If gilt interest rates remained high this would have meant the massive expansion of debt and the deficit would have been enormously more expensive for the government and by extension, you the taxpayer.
With soaring interest rates eating away at the government's finances then they would be forced to intervene, and as tax hikes are unlikely so soon after tax cuts, this would point to one thing: austerity.
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The Bank also said the rise in gilt interest rates risked financial conditions tightening in the UK, cutting the flow of credit to households and businesses, if not addressed.With the BoE stepping in to buy gilts, their objective was quickly completed with lower interest rates coming in quickly and giving a bit more confidence to the markets.
There are a few other reasons the BoE stepped in.
The British gilts market is enormous at over £2 trillion in value. A large number of the holders of these gilts are British pension funds, which are risk-averse and so they buy usually safe assets like gilts.
But they use these gilts as collateral to raise more funds and to hedge against other moves in the market.
This means their investment strategies are highly sensitive to moves in the gilt market.
Sudden movements can cause panic and lead to a sell-off, lowering the value of their assets.
This situation happened today and many pension funds were at risk of not being able to pay out all of their promised pensions, putting the entire fund at risk.The collapse in gilt prices forced these funds to sell their gilts and other assets to balance their books but at the same time further decreasing the value of those same gilts and other assets.
The BoE believed today that the gilt market was in such a difficult situation it could lead to major pension funds collapsing entirely, immediately putting the pensions of millions of Brits at risk and creating a bloodbath in the market.
High gilt interest rates also have a knock-on effect on the mortgage market and have contributed in recent days to lenders pulling mortgage offers due to the volatility in the market.
What does this mean for you?It's both good and bad news. In the immediate term the gilts market has stabilised, keeping pension funds functioning and likely strengthening them as they prepare for a more volatile market.
It also means the imminent amount of borrowing the government is planning will not become even more expensive.
Finally, it will have brought some ease to mortgage lenders who may begin to put some deals back on offer.
But all of this will come at a heavy cost, the sudden reversal of their Quantitative Easing policy from one of winding down to ratcheting up will add to inflationary pressures.
Combined with the weak pound and the government's tax cut, inflation is set to accelerate rather than come down.
This will put further imperative on BoE to increase interest rates as they try and bring inflation down, meaning mortgage deals will re-appear but they will be considerably more expensive.
It also means the BoE is now simultaneously trying to lower inflation by hiking interest rates and also doing actions like Quantitative Easing that can lead to more inflation putting the bank in an even tighter spot than it was at the start of this week.
The intervention averted an immediate and costly crisis, but it was not free or cheap and will have difficult consequences down the road.