The Bank of England will suspend the planned start of its gilt selling next week and begin temporarily buying long-dated bonds in order to calm the market chaos unleashed by the new government’s so-called mini-budget.
Yields on U.K. government bonds, known as “gilts,” were on course for their sharpest monthly rise since at least 1957 as investors fled British fixed income markets following the new fiscal policy announcements. The measures included large swathes of unfunded tax cuts that have drawn global criticism, including from the IMF.
In a statement Wednesday, the central bank said it was monitoring the “significant repricing” of U.K. and global assets in recent days, which has hit long-dated U.K. government debt particularly hard.
“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,” the Bank of England said.
“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.”