Bank of England warns of 'risk to UK financial stability' in emergency intervention

Bank buying government debt to stabilise market after government’s “mini-budget” triggered fall in the pound
Bank of England. Photo: Adobe Stock

By Adam Payne

28 Sep 2022

The Bank of England has taken the drastic step of buying government debt to stabilise the market after the government’s “mini budget” triggered a fall in the pound.

The BoE, in a statement, said it had acted to “restore orderly market conditions” and warned that there was a “material risk to UK financial stability".

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 (28 September) 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.”

The markets have been in turmoil since Friday when chancellor Kwasi Kwarteng announced that the government would borrow tens of billions of pounds to pay for sweeping tax cuts.

Kwarteng and prime minister Liz Truss argue that the policies, which included scrapping the 45 per cent tax band and removing the cap on bankers’ bonuses, are needed to kickstart growth.

However, the chancellor’s House of Commons statement last week was followed by the pound falling to a 37-year low and its lowest ever level against the dollar.

The Scottish National Party and Liberal Democrats have called on parliament, which is currently in recess for party conference season, to be recalled after the Bank’s announcement.

Adam Payne is political editor of Civil Service World's sister title PoliticsHome,  where a version of this story first appeared.

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