Bank of England to launch government bond-buying programme to stabilise UK market

The Bank of England has said it will launch a temporary government bond-buying programme to stabilise the UK market.

It said the emergency action will help to stave off a “material risk to UK financial stability” after Chancellor Kwasi Kwarteng’s mini-budget spooked the markets with its package of tax cuts and increased borrowing.

The Bank has said it will step in to buy government bonds – known as gilts – at an “urgent pace” after fears over the Conservative’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market. It also said it will postpone the planned start of its previously announced gilt sale programme.

In a statement, the Bank said: “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.

“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.

“To achieve this, the Bank will carry out temporary purchases of long-dated UK government bonds from September 28. The purpose of these purchases will be to restore orderly market conditions.

“The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury.”

What has the Treasury said?

The Treasury has said the government will continue to “work closely” with the Bank of England, after the Bank announced the launch of a temporary UK government bond-buying programme.

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.

“These purchases will be strictly time-limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury.

“The Chancellor is committed to the Bank of England’s independence. The government will continue to work closely with the Bank in support of its financial stability and inflation objectives.”

It comes as Mr Kwarteng has been stepping up efforts to reassure the City about his economic plans after the International Monetary Fund criticised the government’s strategy and as the pound suffered further falls on Wednesday.