Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Bank of England will buy UK government bonds in bid to calm markets

Bank of England will buy UK government bonds in bid to calm markets

Major intervention from the UK’s central bank comes hard on the heels of controversial ‘mini-budget’ that pitched debt-funded tax cuts.

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.

In a dramatic emergency intervention, the central bank said 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 move comes after the cost of U.K. government borrowing spiked dramatically and surpassed rates paid by Italy and Greece.

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 bank’s move dramatically brought down the yields on government bonds. The yield on the 30-year benchmark gilt dropped around 1 percent from above 5 percent to 3.9 percent. The pound however fell more than 1 percent against the dollar before recovering to $1.074.

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 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.


‘Her fate is sealed’


Amid turmoil in the markets, Conservative MPs privately expressed anger at the plan unveiled by Kwarteng last Friday, which comes on top of a multibillion pound program of state subsidies to cap soaring energy costs for businesses and consumers. The opposition Labour Party demanded the recall of parliament.

As the Tories prepared to gather for their annual conference in the coming days, one Conservative 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.”

Labour seized on the BoE’s intervention, with leader Keir Starmer urging an end to the parliamentary recess and Shadow Chancellor Rachel Reeves saying: “The chancellor must make an urgent statement on how he is going to fix the crisis that he has made.”

Analysts meanwhile pored over the detail of the bank’s intervention. Capital Economics said that the BoE’s steps show “it is going to do all it can to prevent a financial crisis” but that U.K. markets are “in a perilous position.”

“It wouldn’t be a huge surprise if another problem in the financial markets popped up before long,” the research consultancy said in a note.

“Either way, the downside risks to economic growth are growing. And the chancellor’s 2.5 percent real GDP growth target is looking even more unachievable.”

Markets now anxiously await more detail on the size of the BoE’s intervention, said ING rates strategist Antoine Bouvet.

“We think purchases should and will last longer than the initial two weeks. This would restore market confidence and provide cover for investors to return to the market, sowing the seeds for the end of this crisis,” he said.

“Nevertheless, a lot still hinges on the Treasury and investors will be looking for a credible plan to get debt under control. Today's decision from the BoE only buys time.”


IMF warning


Kwarteng has promised more detail on his fiscal plan in the coming weeks, including independent costings from the OBR and a host of supply-side reforms.

In a scathing verdict on the U.K.’s plans issued Tuesday night, the IMF urged him to "re-evaluate" the tax-cutting plan, which includes the scrapping of the top rate of income tax and an end to a bonus cap for bankers, saying it will "likely increase inequality.”

"Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture," the statement said.

The IMF urged the government to "provide support that is more targeted and re-evaluate the tax measures" during the chancellor’s upcoming announcement.

Shortly after the IMF statement, credit ratings agency Moody's released its own damning verdict, saying the fiscal plan could threaten the country's credibility with lenders by creating larger budget deficits.

As allies of Truss — who won the Tory leadership on a tax-cutting, deregulatory agenda — hit back at the IMF, former Tory Chancellor George Osborne noted: “Odd to see free marketeers urging a free market government to ignore the markets.”

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
JD Vance Warns Europe Faces “Civilizational Suicide” Over Open Borders and Speech Limits
Germany Enters Fiscal Crisis as Cabinet Approves €174 Billion in New Debt
Trump Administration Finalizes Broad Tariff Increases on Global Trade Partners
JD.com Launches €2.2 Billion Bid for German Electronics Retailer Ceconomy
Azerbaijan Proceeds with Plan to Legalise Casinos on Artificial Islands
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
House Republicans Move to Defund OECD Over Global Tax Dispute
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
Intel Reports Revenue Beats but Sees 81% Rise in Losses
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
CEO Resigns Amid Controversy Over Relationship with HR Executive
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
Tulsi Gabbard Unveils Evidence Alleging Political Manipulation of Intelligence During Trump Administration
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
×