Bank of England £65bn Gilt intervention staved off UK financial spiral

The Bank of England has defended last week’s intervention in the UK government bond market, saying it stepped in to prevent a £50 billion fire sale of gilts that would have pushed the UK to the brink of a financial crisis.

The central bank said on Thursday pension funds had been forced to buy long-dated UK government bonds worth £50bn in a short period of time. This would far exceed the average daily trading volume of £12 billion.

The BoE’s defense of the £65bn program is the clearest sign yet of how close the UK came to market collapse following Kwarteng’s ‘mini-budget’ of £45bn in unfunded tax cuts.

Had the central bank failed to intervene, it feared a “self-reinforcing spiral” would have set in, threatening “serious disruptions in core funding markets and consequent widespread financial instability,” said Sir Jon Cunliffe, the BoE’s deputy governor for financial stability in a Letter to the Chair of Parliament’s Finance Committee.

The letter also details warnings received by the BoE ahead of its intervention. Cunliffe said that at the heart of a crisis in the UK pension fund industry, managers of liability-oriented investment strategies had warned as early as Friday September 23 that the huge moves in gilt yields would force them to sell large amounts of sovereign debt. Bank of England £65bn Gilt intervention staved off UK financial spiral

Adam Bradshaw

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