Bank of England moves to calm bond market rout after tax cut storm

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The Bank of England said that it would buy as many long-dated government bonds as needed to restore financial stability after chaos triggered by the new government's fiscal policy

Having failed to cool the sell-off with verbal interventions over the previous two days, the British central bank announced on Wednesday the immediate launch of an"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE warned.

The 30-year gilt yield was set for its biggest drop in records going back to 1992. The pound pared earlier losses to rise against the dollar. At $1.0860, it was up 1.2% on the day and down 11% in the last three months.But the political and economic shockwaves that have triggered mounting alarm in foreign capitals continued to reverberate.

Tourists shelter under umbrellas as they walk through central London, Britain, September 27, 2022. REUTERS/Hannah McKay "There are schemes running out of cash at the moment," one pensions consultant said ahead of the BoE intervention. Another person familiar with the decision confirmed that the BoE moved due to problems facing pension funds, the main holders of long-dated gilts.

Kwarteng, an economic historian who was business minister for two years and a free-marketeer by conviction, has insisted that tax cuts for the wealthy alongside support for energy prices are the only way to reignite long-term economic growth.

 

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