Bank of England steps in to calm markets as UK borrowing costs soar


Britain’s central bank, the Bank of England, is trying to restore financial stability with an emergency bond-buying program after the government’s new fiscal policy caused the pound to plummet and borrowing costs to soar.

The British pound plunged more than 4% on Monday to a record low of $1.03. After recovering to about $1.08 on Tuesday, he dropped to $1.06 on Wednesday morning. There has also been a sale of British government bonds, called gilts.

After the new government of Prime Minister Liz Truss announced the biggest tax cut package in half a century, it was meant to spur growth in the UK economy, but among investors worried about increased government borrowing. It caused panic.

“If this market dysfunction continues or worsens, it will pose material risks to the UK’s financial stability,” the bank said in a statement on Wednesday.

“This would unduly tighten funding terms and reduce credit flows to the real economy,” he said, adding that the central bank was “prepared to restore market functioning and mitigate risks to credit conditions from contagion.” is done,” he added. British homes and businesses. “

To stabilize gold, the bank said it would buy bonds “at the required size” in a temporary bond-buying programme. The program begins Wednesday and runs through October 14th.

“The purpose of these purchases is to restore orderly market conditions,” the bank said.

Mounting pressure

In response to the banks’ intervention, the Treasury Department said the government “will continue to work closely with banks to support financial stability and inflation targets.”

The central bank’s intervention comes after bank officials failed to cool selling with verbal statements over the past two days.

Banks have previously said they would raise interest rates “as much as necessary” to support the pound and keep inflation in check.

Epoch Times photo
UK Chancellor of the Exchequer Kwasi Kwarten walks outside 10 Downing Street in London on September 6, 2022. (Toby Melville/Reuters)

On Tuesday, the International Monetary Fund (IMF) said it was also “closely monitoring” developments in the UK and urged Prime Minister Kwasi Kwarten to “re-evaluate its tax arrangements”.

The crisis has sparked unrest on some Conservative parties and the opposition Labor party has called on the prime minister to issue an urgent statement.

Meanwhile, Kwarteng is stepping up efforts to reassure City of London’s financial investors about his economic plans.

Speaking to investors on Tuesday, he said he remained “confident” in the government’s long-term strategy to spur economic growth through tax cuts and supply-side reforms.

He also claimed the government was “committed to fiscal discipline”.

PA Media and Reuters contributed to this report.

Alexander Chan