Bank launches emergency intervention in markets after Chancellor mini-budget

Business / Wed 28th Sep 2022 at 02:14pm

AS the Governor said in his statement on Monday, the Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets.

This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt. 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 28 September. 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.

On 28 September, the Bank of England’s Financial Policy Committee noted the risks to UK financial stability from dysfunction in the gilt market. It recommended that action be taken, and welcomed the Bank’s plans for temporary and targeted purchases in the gilt market on financial stability grounds at an urgent pace.

These purchases will be strictly time limited. They are intended to tackle a specific problem in the long-dated government bond market. Auctions will take place from today until 14 October. The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.

The Monetary Policy Committee has been informed of these temporary and targeted financial stability operations. This is in line with the Concordat governing the MPC’s engagement with the Bank’s Executive regarding balance sheet operations. As set out in the Governor’s statement on Monday, the MPC will make a full assessment of recent macroeconomic developments at its next scheduled meeting and act accordingly. The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit.

The MPC’s annual target of an £80bn stock reduction is unaffected and unchanged. In light of current market conditions, the Bank’s Executive has postponed the beginning of gilt sale operations that were due to commence next week. The first gilt sale operations will take place on 31 October and proceed thereafter.

The Bank will shortly publish a market notice outlining operational details.

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8 Comments for Bank launches emergency intervention in markets after Chancellor mini-budget:

2022-09-28 16:27:20

Are you still backing them Robert? Or will you be putting your letter in shortly.

tony edwards
2022-09-28 17:09:41

Robert Halfon - this is monumental a self inflicted financial crisis (A Parliamentary Own Goal if ever there was one ). Look at the chaos, the drop in the value of the pound, the rise in mortgage interest rates, the massive increase in the cost of Government debt, the panic in the markets. As our MP you can do something about this - you can openly call for the recall of Parliament. You could with others persuade the Government to change course. You could Vote Down the Government proposals none of which were in the Conservative Parties manifesto Or if that is too much to ask you could abstain and let others vote the the proposals down. But please, please don't attempt to defend the indefensible or ask for Truss and Kwarteng to be given more time. If you do, you will demean yourself and will be party to causing significant and lasting harm to the residents you seek to represent.

Kim Oconnor
2022-09-28 17:25:54

Well said Tony.

2022-09-28 18:57:31

Tony, you are forgetting that Robert Halfon likes to give at least 4 or 5 "one last chances" to any incompetent Conservative leader. He did that with Boris, no doubt he will do the same with the latest shower. After all, 12 years of mismanaging the country's finances deserves at least a few more "one last chances". And it isn't all bad. Just spare a thought for all those millionaires and people earning over $200K, they will be much, much better off with the unfunded tax cuts. I'm sure that the whole of Harlow is relieved to know that bankers will now get the bonuses they deserve and can weather this latest self-inflicted financial crisis with ease. And if anyone is feeling the pinch, perhaps they can re-train in cyber and get at least £200K like they said. Best comment of the day has to go to Angela Rayner : "Liz Truss has even crashed the pork market”. Lets hope that the cheese market survives. Oh, wait, given the inflation on dairy products, too late.

2022-09-28 20:59:11

Nice to see bigotry is alive and well.( probably led us to where we are)

2022-09-28 22:07:09

My god we have gone hysterical since covid, this is just media frenzy and people panicking. The cuts where right and more are needed the state is too big and wasteful. They are panicking over 2B or so we wasted 100 of B on the covid con - just look at what is coming out greatest scandal ever.

David Forman
2022-09-28 22:25:27

The Conservative Party had months to examine Truss's economic plans and despite warnings from Rishi Sunak and later from the Institute for Fiscal Studies (IFS) on 18th August, Tory members chose personal greed to get a payoff from tax cuts. No sense that pensions would take a hit, the Pound would crash and Government debt made more expensive. iNews reported on 18 Aug: 'the IFS said “permanent tax cuts” would exacerbate high pressure on public finances unless it is matched with spending cuts. And the “reality” is that soaring inflation will mean “significant spending increases are likely to be needed” to pay for benefits, pensions and debt interest.' 'The IFS research shows high inflation and interest rates will push up public spending which will offset the effect of an expected increased tax intake.' https://inews.co.uk/news/politics/blow-liz-truss-plans-ifs-warns-sweeping-cuts-are-unaffordable-1801239

2022-09-29 09:47:45

The pound has been in free fall for several months. Started when head of Bank of England made a pessimistic outlook speech for the UK when the pound was at about $1.20, yet no real fuss was made by the media. Tory mini budget knocks 1-2 cents off of the pound and the media goes into melt down. Sounds like hysteria to me.

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