The bank of England (BoE) has announced it will make “temporary purchases of long-term UK government bonds” in a desperate bid to stabilize the UK economy after Kwasi Quarteng’s mini budget announcement last week caused the value of the pound to plummet. Last week’s announcement led investors to demand higher yields for UK Treasuries – which essentially act as IOUs – following the level of borrowing needed to fund the giveaway, priced at $45 billion, which includes tax cuts and household energy aid. and businesses, shocked the market.
The BoE warned that UK financial assets could face “significant price increases”, adding that if this were to continue there was a “material risk to the UK’s financial stability”.
The BoE reportedly intervened, partly because pension funds were “hammered” and potentially lost large amounts of their fund.
It specified that the purpose of the bond purchases was to “restore orderly market conditions”, adding that they will be carried out “on whatever scale is necessary to bring about this outcome”.
The auctions will take place from today until October 14 and will be financed from the bank’s reserves.
In addition to these measures, the bank has postponed the sale of gold, which was due to start next week, and has paused the reversal of the quantitative easing it had implemented during the financial and Covid crisis. However, it added that it maintained its goal of reducing its £838 billion in gold-plated holdings by £80 billion over the next year.
The BoE statement read: “As the governor said in his statement Monday, the Bank is following developments in financial markets very closely in light of the significant price revision of UK and global financial assets. This revaluation has become more important in recent days. – and it mainly affects the UK’s long-term public debt.
“If the dysfunction in this market were to continue or worsen, there would be a material risk to the UK’s financial stability.”
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A Treasury spokesman pointed to “significant volatility in recent days” leading to the move, as well as a “recent dysfunction in gold-plated markets”.
They said: “To enable the Bank to carry out this financial stability intervention, this operation has been fully reimbursed by HM Treasury.
“The Chancellor is committed to the independence of the Bank of England. The government will continue to work closely with the Bank to support its objectives for financial stability and inflation.”
Commenting on the statement, Sky’s Ed Conway said, “It emphatically does not recognize the blindingly obvious — that this dysfunction is a direct result of their actions.”
Yesterday, the International Monetary Fund gave a scathing assessment of Liz Truss’ first major act as prime minister, accusing her economic measures of fueling the cost of living.
Labor leader Keir Starmer urged Ms Truss to review her budget after it left households “very, very concerned” about their future, as he outlined his own economic plan at the Labor Party Conference – which included rolling back the changes quickly proved disastrous for the prime minister.