LONDON (Parliament Politics Magazine) – The big news today for the economy comes as the Bank of England was compelled to announce more market-calming measures after issuing a “material risk to UK financial stability” warning.
To allay concerns about a decline in their value, it will continue to buy government bonds, sometimes referred to as gilts in the UK.
Investors purchase bonds, which are essentially IOU notes; pension funds are particularly reliant on this practice.
The mini-budget presented by Chancellor Kwasi Kwarteng last month, which rocked market confidence in the UK economy, serves as the backdrop.
Following a hike in UK government borrowing costs yesterday, the Bank has now taken fresh action for the second consecutive day.
In keeping with its goal of promoting financial stability, the Bank declared this morning that it would expand the scope of its gilt purchase operations to include index-linked gilts.
“That the Bank of England has been forced to step in for a second day running to reassure markets shows the government’s approach is not working, and creates renewed pressure for the chancellor to reverse his budget.” said Pat McFadden, a shadow chief secretary to the treasury.
Deputy PM: “Absolutely confident” in the security of pensions
The deputy prime minister, Therese Coffey, was questioned on the Bank of England’s recent announcement of buying a wider range of bonds in order to “restore orderly market conditions” earlier this morning on BBC Breakfast.
Jon Kay questioned her explicitly on the threat to economic stability and the security of everyone’s pensions.
She stated that she was unaware of the specifics and had only gotten a brief message as the news broke, but yet expressed her full confidence that pensions were secure.
She said that the Bank was independent, carrying out its role while attempting to stabilise the markets.
What forced the Bank into issuing this warning?
A new risk to the UK’s financial stability was raised, prompting the Bank of England to take its most recent action.
This happened in the wake of the mini-budget announced by the chancellor later last month. This prompted investors to massively sell off government bonds (gilts). The backdrop is the pound’s weakening, which at the end of September initially fell to its lowest value ever before rising and then recently falling once more.
As a result of this, the Bank is investing even more money in buying gilts in an effort to keep their value stable. The action is referred to as “a further backstop to restore orderly market conditions”.
