Bank of England intervenes in steadying financial markets

The Bank of England has announced it will intervene in steadying financial markets in a bid to ensure continued access to credit for businesses and households.

Following the decline of the pound in recent days, UK government bonds have undergone significant repricing, which in the long term could lead to greater financial instability affecting the wider economy by limiting credit availability for UK consumers. The Bank of England has this morning (28th September) announced it will carry out temporary purchases of long-dated UK government bonds to shore up market conditions and restore stability to the gilt markets.

The Bank has confirmed it will carry out purchases on ‘whatever scale necessary’ in order to urgently restore ensure financial stability, between today and the 14th October. The Bank of England has also confirmed it will postpone the beginning of a planned gilt sale operation to reduce its stock to an annual £80 billion target. HM Treasury has also confirmed it will fully indemnify the purchases.

In a statement, the Bank of England said:

“On 28 September, the Bank of England’s Financial Policy Committee noted the risks to UK financial stability from dysfunction in the gilt market. It recommended that action be taken, and welcomed the Bank’s plans for temporary and targeted purchases in the gilt market on financial stability grounds at an urgent pace.

“These purchases will be strictly time limited. They are intended to tackle a specific problem in the long-dated government bond market. Auctions will take place from today until 14 October. The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.”

In the statement, the Bank of England also reiterated its continued commitment to controlling inflation and “will not hesitate to change interest rates by as much as needed” to meet its 2% target in the medium.

The intervention in gilt markets follows meetings this morning between the Chancellor Kwasi Kwarteng and leaders of major investment banks who he sought to reassure over criticism of last week’s Growth Plan mini-budget.