The Bank of England (BoE) stepped up its intervention in the gold coin market on Tuesday by including index-linked gold coins in its emergency purchase program, saying market malfunctions pose a “significant risk” to the UK’s financial stability.
Deputy Prime Minister Therese Coffey said she was “absolutely confident” that pensions were safe despite central bank warnings, and a brief briefing message she received from the Treasury Department was “technical financial stability”. Said there was.
Downing Street said Prime Minister Liz Truss was “committed” to the government’s plans to stimulate growth.
A program of temporary purchases of government bonds by the BoE was introduced on 28 September after bond prices plummeted following the announcement of the government’s mini-budget. This threatened to collapse pension funds and further increase the price of gold coins.
Banks on Monday doubled the daily purchase limit from £5bn ($5.5bn) to £10bn ($11bn) to support an “orderly end” of the program on Friday.
But the move, along with the government’s decision to announce its debt reduction plan early, failed to calm the market.
“Earlier this week saw a significant revaluation of UK government debt, particularly index-linked government bonds,” the Bank of England said in a statement.
“This market dysfunction and the prospect of a self-reinforcing ‘fire sale’ dynamic poses material risks to the UK’s financial stability,” it added.
The bank said it would use half of the daily limit for buying index-linked gold coins and the other half for long-term conventional gold coin buying operations, instead of raising the buying limit further.
The temporary government bond purchase program is fully covered by the Treasury Department.
The BoE also said it would temporarily suspend sales operations for corporate bond purchase schemes.
Truss ‘confident’ economic policy ‘brings growth’
Speaking to “BBC Breakfast,” Coffey said he was “absolutely sure that pensions are safe.”
“The Bank of England is independent and does its job to provide some stability,” said the Deputy Prime Minister.
“I don’t know much about the details of what happened this morning. The briefing message I received from the Treasury Department is that this is technical financial stability,” she added.
Responding to the Bank of England’s announcement, an official spokesman for Truss said the bank’s additional measures would “encourage an orderly end” to the intervention programme.
“This is in line with our financial stability goals and we are in regular communication with banks and will be closely monitoring the market over the next few days,” he said.
Officials stressed the bank’s independence when asked if the bond-buying plan would be completed by the Oct. 14 deadline.
He said the bank’s new emergency action was not discussed at a major ministerial meeting on Tuesday morning.
“They discussed growth plans and their importance,” the spokesperson said.
He said the Truss is “committed to the growth measures” set by Treasury Secretary Kwasi Kwarten on September 23.
“The prime minister remains confident that the measures in place will lead to economic growth,” he said.
PA Media contributed to this report.