Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The Bank of England has confirmed that its bond-buying scheme that was introduced following new Chancellor Kwasi Kwarteng's mini-budget will come to an end this Friday, as planned.
On Wednesday, a BoE spokesperson said: ‘As the bank has made clear from the outset, its temporary and targeted purchases of gilts will end on October 14.
‘The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels. Beyond October 14, a number of facilities, including the new [temporary expanded collateral repo facility], are in place to ease liquidity pressures on [liability-driven investments].’
The central bank had stepped in after Kwarteng announced a series of unfunded tax cuts, knocking the pound and sending UK bond markets into a frenzy.
On Monday, it doubled its daily bond-buying limit to £10 billion, while Kwarteng brought forward his new fiscal plan and independent economic forecasts to October 31 in an attempt to calm turbulent markets.
The BoE on Tuesday had affirmed its emergency gilt buying will end on Friday. The move came despite bond market volatility that has put pensions and the UK's ‘financial stability’ at risk.
Governor Andrew Bailey in Washington said: ‘My message to the [pension] funds involved you've got three days left now. You have got to get this done. Part of the essence of a financial stability intervention is that it is clearly temporary.’
The statement from the BoE on Wednesday followed a report by the Financial Times that the central bank had privately signalled that it may be willing to extend its emergency programme beyond this week.
The newspaper, citing people briefed on the talks, said some bankers had been told officials are closely watching pension funds and their managers.
The BoE also released its Financial Policy Summary on Wednesday.
‘Since our July Financial Stability Report, the outlook for growth in the UK and globally has deteriorated further. Prices have continued to rise rapidly, with particularly steep increases in energy and other commodity prices,’ the BoE said.
It noted its September intervention following ‘sharp’ moves in ‘certain UK assets’.
‘The pace of these moves was unprecedented and resulted in serious dysfunction in parts of the UK government bond market,’ it added. ‘Financial stability is not the same as market stability or the avoidance of any disruption to users of financial services. However, if left unchecked, this dysfunction would have resulted in a material risk to UK financial stability and further tightened credit for households and businesses.’
The BoE said it - alongside the Pensions Regulator and the Financial Conduct Authority - is ‘closely monitoring’ liability-driven investing managers. The bank is looking for the managers to ‘put their funds on a sustainable footing for whatever level of asset prices prevails when the bank ceases purchasing gilts’.
Copyright 2022 Alliance News Limited. All Rights Reserved.