Labour has accused ministers of forcing the public to "pay the price for their mistakes".

Shadow treasury minister Pat McFadden spoke to BBC Breakfast, after a report from the Institute for Fiscal Studies think tank suggested the chancellor would need to make big spending cuts due to a shortfall in revenue.

McFadden said the government should rethink its policies, adding: "It's time to press pause on this rather than doing more damage."

Investors anxious that tax-cutting plans risk overstretching public financespublished at 09:30 BST 11 October 2022

09:30 BST 11 October 2022

Dharshini David
Economics Correspondent

“A material risk to UK financial stability” are words the Bank of England uses rarely.

It is even more rare for several senior Bank executives to have indicated part of the blame for the turmoil may lie at the government’s door, as the result of domestic policy.

They’re not alone. The sharp rise in the cost of new government borrowing - the interest that has to be paid on government bonds - reflects an anxiety among investors that tax-cutting plans risk the UK overstretching itself.

And it’s pensions funds and borrowers who are hit by the fallout.

It is the Bank which - again, a rare event - had to try to ease their pain.

But it has made it clear that its chosen medicine is a stop gap and the lingering unease in the market emphasises that it is ultimately looking for a more fundamental approach.

Resolving this crisis of faith will ultimately depend on what the Chancellor unveils in his Halloween plan.

If the Institute for Fiscal Studies is right, the price of restoring credibility could involve upwards of £60bn worth of cuts to public spending.

A report from the Institute for Fiscal Studies (IFS) makes further uncomfortable reading for the government - and the public - this morning.

The think tank predicts a large shortfall in government revenue due to a weaker economy and the raft of tax cuts promised by Chancellor Kwasi Kwarteng.

As a result, Kwarteng will need to make "big and painful" spending cuts to put the UK's finances back on a safer path, the IFS warns.

It calculates the government would have to spend £60bn a year less by 2026-27.

But the Treasury insists its planned tax cuts and reforms - which it says will boost economic growth - will deliver "sustainable funding for public services".

To make the sums add up, the IFS says the government could have to:

• increase working-age benefits in line with average earnings rather than inflation for two years to save £13bn
• limit public investment to 2% of national income, to save £14bn
• cut the budgets of every government department except health and defence by 15%, to save around £35bn

The pound is currently priced at around $1.10, after sliding further this morning.

It hit record lows against the US dollar in late September before recovering some losses and then weakening again.

The chart below shows how the value of the pound has fluctuated over the last month.

Image source, .

The Bank of England made its latest intervention amid warnings of a fresh risk to UK financial stability.

The move is part of a continuing response to a huge sell-off of government bonds (also known in the UK as gilts) by investors in the wake of the chancellor's mini-budget late last month. The backdrop is the weakening of the pound - which initially plunged to its lowest value on record at the end of September before recovering and in recent days dropping again.

As a result, the Bank is committing yet more money to snapping up gilts - in order to try and maintain their value. It describes the move as "a further backstop to restore orderly market conditions".

This time, the Bank is specifically pledging to buy inflation-linked gilts.

Therese Coffey, the deputy prime minister, was asked a little earlier on BBC Breakfast about the Bank of England's new statement that it will buy a wider range of bonds to help "restore orderly market conditions".

Jon Kay asked her specifically about the risk to financial stability and if everyone's pensions were safe.

She said she wasn't aware of the specific details and had only received a short brieing message as the news emerged but she was "absolutely confident pensions are safe".

The Bank, she said, was independent, undertaking its role and trying to bring some stability to markets.

Watch what she had to say:

Good morning and thanks for joining our live coverage. There's a lot of economic news coming out this morning, and we're going to do our best to explain what it all means.

The big news is that the Bank of England has been forced to unveil more measures aimed at calming markets - warning of a "material risk to UK financial stability".

It's going to extend its purchases of government bonds (also known in the UK as gilts) to stave off worries about a collapse in their value.

Bonds are effectively IOU notes which are bought by investors - with pension funds especially reliant on buying them.

The backdrop is last month's mini-budget delivered by Chancellor Kwasi Kwarteng, which shook market confidence in the UK economy.

Stay with us.