Bank of England buys UK Government bonds in a move to restore market confidence

29 Sep 2022 , 07:53 AM

In response to Britain’s sharply criticized budget that was intended to battle inflation, the Bank of England intervened on Wednesday to support market confidence by purchasing UK government bonds.

In a statement, the BoE stated that its temporary purchase of long-dated bonds was done “to restore orderly market conditions.”

Following Friday’s expensive budget, which raised concerns about the state of the public finances, the statement came as government borrowing costs skyrocketed.

If current market conditions persist, there is a “material risk to UK financial stability,” the bank continued.

According to the report, “this would result in an unjustified tightening of financing conditions and a decrease in the flow of credit to the actual economy.”

In addition to rising UK government bond yields, the pound touched a record low of $1.0350 on Monday.

According to a statement released on Wednesday, the bank “stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK families and businesses.”

Analysts have cautioned that in order to attempt and reduce decades-high inflation, the BoE will need to increase interest rates even more forcefully in the upcoming months.

The bank increased its benchmark interest rate by a half point to 2.25% last week.

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