The Bank of England today announced an emergency government bond-buying programme to stave off a 鈥渕aterial risk to 海角视频 financial stability鈥 that could see borrowing costs spiral.
The central bank said it was stepping in to buy gilts at an 鈥渦rgent pace鈥 after fears over the 海角视频 Government鈥檚 economic policies following Kwasi Kwarteng's mini-budget sent the pound tumbling and sparked a sell-off in the gilts market.
The pound hit an all-time record low of 1.03 against the US dollar on Monday. But also the yield on 10-year gilts - which is a proxy for the effective interest rate on public borrowing - has also soared by the most in a five-year period since 1976.
A statement from the Bank said: 鈥淲ere dysfunction in this market to continue or worsen, there would be a material risk to 海角视频 financial stability.
鈥淭his would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
鈥淚n 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 海角视频 households and businesses.鈥
The Treasury responded by reaffirming its commitment to the Bank of England鈥檚 independence and said the government 鈥渨ill continue to work closely with the Bank in support of its financial stability and inflation objectives鈥.
The Bank of England said it would buy bonds 鈥渙n whatever scale is necessary鈥 in order to steady gilts, after Chancellor Kwasi Kwarteng鈥檚 mini-budget last Friday spooked the markets with a package of tax cuts and increased borrowing.
It said the bond-buying programme would be temporary, starting from today until 14 October.
The Bank of England also postponed next week鈥檚 planned kick-off of its 拢80bn sale of gilts, under the so-called 'quantitative tightening' programme until 31 October.
Labour's Rachel Reeves has called for an 鈥渦rgent statement鈥 from the Chancellor to address 鈥渢he crisis that he has made鈥.
The shadow chancellor said of the Conservatives: 鈥淭heir decisions will cause higher inflation and higher interest rates 鈥 and are not a credible plan for growth.
鈥淭he Chancellor must make an urgent statement on how he is going to fix the crisis that he has made.鈥
Sir Charlie Bean, a former deputy governor of the Bank of England, has said that despite Wednesday鈥檚 intervention by the Bank, interest rates will still likely need to rise.
Speaking to BBC News, Sir Charlie said: 鈥淭he need for an immediate rate increase is much reduced. It is not going to go away though.
鈥淚t is likely that accompanying the fiscal expansion that was announced at the end of last week, the bank will have to significantly raise interest rates.
鈥淭he financial stability action today is not going to change the fact that mortgage interest rates will be rising in the future.鈥
He also told the broadcaster that a rapid market response could be anticipated, following the Bank of England鈥檚 announcement.
鈥淢erely the fact of the bank standing ready to purchase 海角视频 government bonds automatically helps to stabilise the market, and I have to say this is clearly the right thing to do.鈥
Also on BusinessLive:
