Bank of England steps in to calm markets amid IMF warning

London: The Bank of England stepped in on Wednesday by offering to buy some of the country's long-term debt as an emergency measure to prevent "material risk" to the country's financial stability, amid an unprecedented warning by the IMF that the UK's recent mini-budget risked making the cost-of-living crisis worse.

The central bank said it would buy as many long-dated government bonds as needed between now and October 14 in a bid to calm some of the mayhem that followed the Liz Truss-led government's massive tax-cutting and government borrowing mini-budget last Friday.

It has seen the pound tumble against the dollar as investors demand a greater rate of return for UK bonds because the level of government borrowing required to fund the financial measures have spooked the markets.

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

This repricing has become more significant in the past day and it is particularly affecting long-dated UK government debt. 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 warned.

It said the Monetary Policy Committee (MPC), the independent body which sets the country's interest rates, has been informed of the temporary and targeted financial stability operations, which will be fully indemnified by the UK's Treasury or the finance ministry.

The Treasury said the move was in line with the central bank's financial stability objective to carefully monitor financial markets and any potential risk to the flow of credit to the real economy and subsequent effects on UK households and businesses.

Global financial markets have seen significant volatility in recent days. The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK government bonds from today (September 28) in order to restore orderly market conditions, said a UK Treasury spokesperson.

These purchases will be strictly time limited, and completed in the next two weeks The Chancellor [Kwasi Kwarteng] is committed to the Bank of England's independence. The government will continue to work closely with the Bank in support of its financial stability and inflation objectives, the spokesperson said.

The Treasury indemnifying the purchases means the bond purchases would be fully covered by the finance ministry in the event of any losses and the Bank of England plans to sell back the bonds it purchased once market conditions stabilise. The Bank of England says the move follows its Financial Policy Committee recommending action be taken and has welcomed the central bank's plans for the temporary and targeted purchases in the gilt market on financial stability grounds at an

urgent pace.