Bank launches emergency bond-buying action as UK borrowing costs soar

The Bank of England has launched an emergency UK Government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.

The Bank announced it was stepping in to buy Government bonds – known as gilts – at an “urgent pace” after fears over the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.

While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts – which is a proxy for the effective interest rate on public borrowing – has soared by the most in a five-year period since 1976, according to experts.

The Bank said: “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.

“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UKhouseholds and businesses.”

The Treasury responded by reaffirming its commitment to the Bank of England’s independence and said the Government “will continue to work closely with the Bank in support of its financial stability and inflation objectives”.

It comes as Chancellor Kwasi Kwarteng has been stepping up efforts to reassure the City about his economic plans after the International Monetary Fund criticised the Government’s strategy – and as the pound suffered further falls on Wednesday.