The Bank of England has said it will further bolster its emergency bond-buying plan as it warned the ongoing rout in the gilts market poses a “material risk to UK financial stability”. The central bank said it will now widen the scope of its UK government bond-buying programme, which was launched in the wake of the mini-budget market turmoil, to include purchases of index-linked UK government bonds amid concerns over another “fire sale” of gilts.
It comes after the sell-off in government bonds – also known as gilts – resumed on Monday as investor concerns failed to subside despite action by the Bank of England to double its daily bond-buying limit and Chancellor Kwasi Kwarteng’s move to bring forward his new fiscal plan and independent economic forecasts to October 31.
Long-dated gilt prices tumbled, which sent yields on 30-year bonds soaring to 4.7% on Monday – their highest level since the Bank of England was forced to step in last month to avoid a mini financial market crisis.
The Bank said: “The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”
It added that its latest efforts will “act as a further backstop to restore orderly market conditions”.
Deputy Prime Minister Therese Coffey insisted pensions are safe despite the Bank of England’s warning of a “material risk to UK financial stability”. She told BBC Breakfast: “I’m absolutely confident pensions are safe, the Bank of England is independent and undertaking its role in trying to bring some stability, which it had done.
“I’m not aware of the details of exactly what’s happened this morning. The short briefing message I’ve had from Treasury is that it’s a technical financial stability.”
