LONDON (CU)_To “restore orderly market conditions” and avoid a “material risk to financial stability” brought on by market turbulence following last week’s Mini Budget, the Bank of England announced on Wednesday (September 28) that it will temporarily purchase long-dated government bonds and pause the start of quantitative tightening. As the Monetary Policy Committee had been on a strategy of selling down the bank’s bond holdings, this signifies a monetary U-turn for the central bank. This was supposed to start on October 3 but has been delayed until October 31. The K treasury bond markets rebounded in response to the Bank’s statement, with 30-year gilt rates dropping below 5% to 4.63% and 10-year yields decreasing from 4.59% to 4.26%. At the time of writing, the pound has started to decline once again near $1.05.
Hargreaves Lansdown’s Susannah Streeter, a senior investing and markets analyst, claimed that the bank’s bond-buying binge demonstrates “what a dilemma” it is in right now. “It is quite concerned that the tax-cutting binge might drive inflation to surge to hazardous levels,” she added. “It recognizes that ultra-high bond rates would produce a ricochet of difficulties for firms and consumers and perhaps cause instability in the housing market.” Just two days after saying they would wait until November, bank officials’ decision to intervene now “smacks of a little fear as well as anger that the government looks to be digging in its heels, hesitant to do a political U-turn.” Jim Leavis, CIO for Fixed Income at M&G, stated that it “is not a good look” for the Bank of England to have to step in to lessen the harm caused by the government. “The IMF took the extraordinary step of criticizing UK policy last night, even though it often raises its eyebrows at finance ministers of emerging nations. A credit rating drop is also a possibility, and the rating agencies are also standing by,” he stated.
