The Bank of England said Wednesday that it will carry out emergency purchases of U.K. government bonds in order to restore 'orderly market conditions' amid the historic slide for the pound.
The BoE said the purchases will begin immediately, and target longer-dated U.K. government debt in the £2.1 trillion market on "whatever scale is necessary" to "restore orderly market conditions".
The BoE also postponed planned auctions of U.K government bonds, known as Gilts, until at least October 14, and will push back plans to reverse its long-running program of quantitative easing until the end of next month.
"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."
"In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses," the statement added.
The pound was marked 0.31% higher against the dollar immediately following news of the Bank's intervention, and changing hands at 1.0719, before fading back to 1.0567 as details of the emergency action were made public.
Benchmark 10-year Gilt yields, the equivalent of a U.S. Treasury bond, fell by around 43 basis points to 4.072%, while 30-year Gilts fell 100 basis points to 3.993%.
U.S. stock futures pared losses as well, with contracts tied to the Dow Jones Industrial Average now indicating an opening bell gain of around 45 points, down from a slump of around 290 points prior to the BoE statement. Futures linked to the S&P 500 are indicating a 1 point bump.
The pound slumped to an all-time low of 1.0327 against the U.S. dollar Monday following a 'mini budget' statement from finance minister Kwasi Kwarteng late last week.
That statement, unveiled in only the third week of Prime Minister Liz Truss' new government, included $80 billion in new borrowing -- the largest increase since 1972 -- to fund both a planned cap on consumer energy prices over the coming winter and tax cuts for the highest earners in the world's fifth largest economy.
The International Monetary Fund issued a rare statement rebuking the plans late Tuesday, adding that the "nature of the U.K. measures", which target tax cuts for the wealthiest citizens, "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, as it is important that fiscal policy does not work at cross purposes to monetary policy,” the IMF said.
