Bank of England moves in calm markets again warning of ‘material risk’ to UK financial stability

The Bank of England has widened it’s emergency bond-buying plan to counter what it warned was “dysfunction” in the market.

The move comes a day after a sell-off in UK government bonds pushed up the country’s long-term borrowing costs.

The emergency bond-buying programme was put in place after Chancellor Kwasi Kwarteng’s “mini” Budget on September 23 sparked a sell-off in UK government bonds.

The central bank said it will widen the scope of its action launched in September.

In a statement, the bank said the beginning of this week has “seen a further significant repricing of UK government debt, particularly index-linked gilts.”

The bank warned an ongoing rout in the gilts market poses a ‘material risk to UK financial stability’.

The BoE said: “On 28 September, the Bank announced that, in line with its financial stability objective, it would make temporary and targeted purchases of gilts to help restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.”

“As previously announced, the Bank plans to end these operations and cease all gilt purchases on Friday 14 October.”

“On 10 October, the Bank announced additional measures to support market functioning and an orderly end to its gilt purchase scheme.”

“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”

“Therefore the Bank is announcing today that it will widen the scope of its daily gilt purchase operations also to include purchases of index-linked gilts.”

“This enhancement to our operations will be in effect from 11 October 2022 until 14 October 2022 alongside the Bank’s existing daily conventional gilt purchase auctions.”