The Bank of England has said it will start buying up bonds in an emergency move to avoid a “material risk to UK financial stability”.
The news comes after the pound plunged in the wake of Chancellor Kwasi Kwarteng’s Mini-Budget last week.
The central bank has paused its plans to sell government bonds, and instead will do the opposite by starting to buy up old ones.
The aim is to calm what the Bank of England is calling “dysfunctional markets”.
When central banks buy their country's own bonds - a sort of debt - interest rates tend to fall.
That matters to all Brits because these interest rates are built in to the price of things like mortgages and loans.
Experts think interest rates could rise from 2.25% to 6% next year, as the Bank of England battles against high inflation - currently 9.9%.
A Bank of England statement today said: "As the Governor said in his statement on Monday, the Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets.
"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.
"This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."
It comes as the Chancellor met with business leaders today, with executives from major banks seen leaving through the front door of the Treasury.
None of them responded to questions put by reporters about what assurances had been offered by Mr Kwarteng in the wake of the pound's slumping value.
The Treasury has said the government will continue to "work closely" with the Bank of England.
A Treasury spokesperson said: "The Bank of England, in line with its financial stability objective, carefully monitors financial markets and any potential risk to the flow of credit to the real economy, and subsequent effects on UK households and businesses.
"Global financial markets have seen significant volatility in recent days.
"The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK government bonds from today in order to restore orderly market conditions."
Rachel Reeves has called for an "urgent statement" from the Chancellor to address "the crisis that he has made".
The shadow Chancellor said of the Conservatives: "Their decisions will cause higher inflation and higher interest rates - and are not a credible plan for growth.
"The Chancellor must make an urgent statement on how he is going to fix the crisis that he has made."
Banks and building societies are pulling or tweaking mortgages due to the economic fallout from the Government's mini-Budget last week.
Lenders are pulling deals for new customers temporarily, as they think mortgage rates will soon soar further.
Experts think interest rates could rise from 2.25% to 6% next year, as the Bank of England battles against high inflation - currently 10.1%.
Base rate is factored in to the cost of financial deals like mortgages.
If base rate goes up, tracker mortgage prices go up almost straight away, as do new fixed rate mortgage costs.
Lenders are withdrawing or tweaking some of their deals to reprice them, but also to avoid lending to customers who may not be able to pay their loans back if costs rise.
