The Bank of England (BoE) will buy more government bonds to try and stabilise market conditions, it said after issuing a fresh warning of a “material risk” to financial stability. Notably, markets went into a frenzy, driving up borrowing costs after the emergency scheme started following September’s mini-budget.
The week had already seen action taken by the BoE and UK government, aimed at bringing calm to bond markets in particular as state borrowing soars.
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Prime Minister Liz Truss’s government had unveiled debt-fuelled tax cuts in a mini-budget last month. The budget led to the pound falling to a record low.
In a statement, the BoE said the latest action would “act as a further backstop to restore orderly market conditions”.
Government borrowing costs rose again sharply after the Bank said the scheme would end as planned on Friday. The dramatic market movements also put some pension funds at risk of collapse, leading to the Bank of England stepping in to take emergency action.
The Bank warned of a fresh downturn in markets after government bonds saw a “significant repricing” at the start of the week. It will buy a wider range of bonds as well as continue to buy bonds as part of the September 28 emergency measures.
Finance minister Kwasi Kwarteng is set to unveil debt-reduction plans and independent economic predictions on October 31. The move comes after Chancellor of the Exchequer Kwarteng was forced to axe a tax cut for the rich due to an outrage in the country over it. Millions of Britons are facing a cost-of-living crisis with UK inflation around 10 per cent.
(With inputs from agencies)
