Connect with us

Hi, what are you looking for?

Europe

Bank of England will buy UK government bonds to try to calm markets

The Bank of England will buy up U.K. government bonds to try to halt a dramatic sell-off as it warned of a “material risk to UK financial stability” in the wake of the government’s mini-budget.

The central bank said that it would today start buying long-dated government bonds at “whatever scale is necessary” in a bid to “restore orderly market conditions.”

“The Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets,” it said in a statement.

“This repricing has become more significant in the past day — and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.”

The BoE described the purchases of the U.K. government debt, known as gilts, as “temporary and targeted” but said they would take place at an “urgent pace” until October 14.

The Bank also decided to delay sales of its own portfolio of gilts built up under its quantitative easing program since the 2008 financial crisis.

The sales were due to start next week but will now be postponed until October 31.

The intervention comes after the cost of U.K. government borrowing spiked dramatically and surpassed rates paid by Italy and Greece.

The yield on the 30-year benchmark gilt slid around 30 basis points on the news from above 5 percent to 4.77 percent.

U.K. Chancellor Kwasi Kwarteng’s plan for debt-funded tax cuts — unveiled without the usual scrutiny from independent fiscal watchdog the Office for Budget Responsibility — has also led to a plunge in the pound and sparked criticism from the International Monetary Fund.

The Treasury said in a statement that the Bank of England was responding to “a risk from recent dysfunction in gilt markets.”

“These purchases will be strictly time limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury,” it said.

Amid turmoil in the markets, Conservative MPs expressed anger at the plan unveiled by Kwarteng last Friday.

One MP said of new Prime Minister Liz Truss that the “least bad option at this point would be to fire Kwasi.”

And they added: “Her fate is sealed. But this is her best hope of avoiding total catastrophe.”

This article is part of POLITICO Pro

The one-stop-shop solution for policy professionals fusing the depth of POLITICO journalism with the power of technology


Exclusive, breaking scoops and insights


Customized policy intelligence platform


A high-level public affairs network

Click to comment

Leave a Reply

Your email address will not be published.

You May Also Like

Europe

BERLIN — In a new effort to attract talented foreign workers to the country, Chancellor Olaf Scholz announced plans to reform Germany’s immigration system...

Europe

LONDON — Rishi Sunak sought to up his rhetoric on China on Monday while carefully opening the door to further talks with President Xi...

Technology

PARIS — Brussels wants media concentration to become a European Union issue. French billionaire Vincent Bolloré is testing how serious it is. The European...

Energy

EU countries resumed last-ditch talks on Monday to secure agreement on a price cap for Russian oil, with deep splits among them on where...

Industrial Policy

A planned reform of EU corporate taxation would substitute national business tax rules, EU Economy Commissioner Paolo Gentiloni said Monday. The “Business in Europe...

Technology

Press play to listen to this article Voiced by artificial intelligence. A lobby group backed by Elon Musk and associated with a controversial ideology...

Energy

As part of its push to channel cash to green projects, Brussels has labeled electric vehicles as sustainable investments — but not the individual components...

Technology

Press play to listen to this article Voiced by artificial intelligence. The cryptocurrency world is reeling after the collapse of crypto exchange FTX —...