People stand outside the Bank of England in the City of London last week (Picture: Reuters)
The Bank of England has said it will further bolster its emergency bond-buying plan.
It warned an ongoing rout in the gilts market poses a ‘material risk to UK financial stability’.
The central bank said it will widen the scope of its action launched in the wake of the mini-budget market turmoil.
It will now include purchases of index-linked UK government bonds amid concerns over another ‘fire sale’ of gilts.
It comes after the sell-off in government bonds – also known as gilts – resumed yesterday as investor concerns failed to subside.
This was despite action by the Bank of England to double its daily bond-buying limit and Chancellor Kwasi Kwarteng’s move to bring forward his new fiscal plan and independent economic forecasts to October 31.
Long-dated gilt prices tumbled, which sent yields on 30-year bonds soaring to 4.7% on Monday – their highest level since the Bank of England was forced to step in last month to avoid a mini financial market crisis.
The Bank said: ‘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.’
It added that its latest efforts will ‘act as a further backstop to restore orderly market conditions’.
This morning Deputy Prime Minister Therese Coffey insisted the UK’s public finances are in a ‘good state’ after the Institute for Fiscal Studies warned £60 billion spending cuts would be needed to get finances under control.
Ms Coffey denied that Chancellor Kwasi Kwarteng brought his medium-term fiscal plan forward because the markets were spooked.
She told Sky News: ‘I think he decided we’re in a good state and we’ll continue to discuss this across Government and with Parliament over the few weeks ahead.’
Ms Coffey was not aware of the Bank of England’s fresh action at the time she gave her interview.
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It said it will further bolster its emergency bond-buying plan due to an ongoing rout in the gilts market.