The Bank of England has taken steps to reassure jittery financial markets
(Picture: PA Wire)The Bank of England on Monday took further steps to reassure jittery financial markets ahead of the end of its £65 billion bond-buying programme on Friday.
The Bank was forced to launch the dramatic market intervention last month to avert an “unprecedented” meltdown in pension funds after the cost of government borrowing shot up following Chancellor Kwasi Kwarteng’s tax-cutting mini-budget.
But there have been fears that the City could see another sell-off of Government debt when the scheme closes at the end of this week.
To ensure what it called an “orderly end of its purchase scheme”, the Bank said early on Monday that it would double the daily limit on its bond-buying programme from £5 billion to £10 billion to help pension funds and asset managers to make adjustments to their investments.
So far, the Bank has carried out eight daily auctions and has made about £5 billion of bond purchases — a move it says averted a collapse in pension funds as they sold off Government debt.
Despite U-turning on plans to abolish the 45p top rate of tax for the highest earners, Mr Kwarteng is under pressure to set out how he will pay for £43 billion of tax cuts and new fiscal rules which show how debt will fall as a proportion of GDP in future years.
The turmoil which followed his mini-budget last month forced pension funds to sell UK Government bonds to head off worries over their solvency, but this threatened severe losses and was creating a downward spiral in gilt prices as more were offloaded.
The uncertainty over the cost of government borrowing and the expectation of future interest rate rises by the Bank led to chaos in the mortgage market as hundreds of new products were pulled. Homeowners are facing a sharp spike in monthly payments with fixed-rate mortgages rising to over six per cent for the first time since 2008.
