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Bank of England steps in to protect the economy

29th September 2022

The Bank of England (BoE) announced a £65 billion "gilt market operation" aimed at protecting the economy on Wednesday (28 September).

As part of this operation, the BoE will carry out temporary purchases of long-dated Government bonds in an attempt to restore "orderly market conditions" from 28 September to 14 October.

The Government borrows money for spending by selling bonds, or gilts, to investors, but following the mini-budget, investors started demanding higher interest rates, pushing up the price of borrowing.

The Bank was forced to intervene after market turmoil put pressure on pension funds, which often invest in Government bonds because they are usually so stable.

By purchasing bonds, the Bank hopes to lower the rate of interest on Government bonds and stabilise financial markets.

Following the announcement, the value of the pound rose to $1.08, but the BoE warned that if this dysfunction continued, there would be a "material risk to UK financial stability".

Political economist Richard Murphy welcomed the move that would "increase bond prices, and so reduce pressures on interest rates".

However, he also called the strategy "incoherent", as the BoE plans on beginning to sell £80bn of its gilts from 31 October.

The BoE will publish a market notice outlining operational details shortly.

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