Bank of England steps in to calm markets

The Bank of England has revealed that it is launching a bond-buying programme in a bid to prevent ‘material risk’ to the UK’s financial stability.

The bank says it is going to restore ‘orderly market conditions’ and buy as many long-dated government bonds as needed from today until 14 October.

The move follows the market mayhem that followed last Friday’s mini-budget unveiled by the government.

This has led to investors seeking a better rate of return for government bonds because of the level of borrowing necessary to help fund the tax cuts unveiled in the budget, as well as providing help in paying energy bills for businesses and households.

Repricing of global and UK financial assets

In a statement, the Bank of England said that the repricing of global and UK financial assets ‘has become more significant in the past day’.

The statement goes on: “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.”

Bond purchase programme will be covered by HM Treasury

The bank also makes clear that the bond purchase programme will be covered by HM Treasury if there are any losses.

And once once market conditions have stabilised, the bank will sell the bonds it purchases back to the market.

The planned selling of gilts next week by the bank has now been postponed and will take place on 31 October.

Meanwhile, the financial information service, Moneyfacts, says that 935 mortgage products were removed yesterday, and this is the largest overnight drop in the number of available mortgage products they have ever recorded.