Bank of England intervenes to restore order in government debt market

(Update 1: Re-casts, alters headline, adds detail)

London, Sep 28 (EFE).- The Bank of England has intervened in the United Kingdom’s bond market to restore “orderly” conditions after the government’s tax-cutting mini budget sent the pound plummeting and borrowing costs surging.

The UK’s central bank said it would from Wednesday begin “temporary purchases of long-dated UK government bonds.”

“The Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets,” the BoE said in a statement.

“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.

“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” it added.

The intervention by the BoE came after the International Monetary Fund rebuked the financial policies drawn up by the UK’s new chancellor, Kwasi Kwarteng, warning that fiscal deregulation would likely exacerbate the cost of living crisis.

“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” it said.

In a self-styled mini Budget published Friday, Kwarteng pushed to deregulate markets and cut taxes to boost growth by increasing national borrowing.

It sent jitters through the market amid concerns of rising interest and borrowing rates. It also set the pound spiraling with sterling trading at $1.06 on Wednesday morning.

Kwarteng has defended his growth strategy and on Tuesday held crunch talks with London’s top financiers to try and calm markets after his announcement sent the pound and UK bonds into freefall. Kwarteng is expected to provide more details about the measures on November 23.

The IMF said the November deadline would give prime minister Liz Truss’ government an opportunity “to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners”.

Kwarteng is to continue meeting with top bankers on Wednesday in a bid to reassure markets which have been in turmoil since Monday. EFE

jm/ch-jt/mp/ch