The Bank of England has announced an emergency move to buy government bonds on a temporary basis in an effort to “restore orderly market conditions”.
These purchases of long-dated bonds will be carried out “on whatever scale is necessary to effect this outcome”, the Bank said on Wednesday. The operation will be fully indemnified by the Treasury.
It comes after after the UK government’s tax-cutting plans led to a fall in the pound and a sharp rise in borrowing costs.
The central bank also said it was postponing the planned start of its previously announced gilt sale programme.
If the turmoil in the UK government bond market were to continue or worsen there would be a “material risk to UK financial stability”, the Bank of England warned, adding that this would lead to a “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,” it added.
