The Bank of England has announced new measures aimed at ensuring an “orderly end” to its emergency bond buying scheme which was introduced to stop a collapse of some pension funds.
The Bank will increase the amount of bonds it can buy in the final week of the scheme, which ends on Friday.
It will also introduce extra support to ease future strains on pension funds.
The Bank initially stepped in after the government’s mini-budget sparked turmoil on financial markets.
With the deadline for the Bank’s bond-buying programme fast approaching, there have been concerns volatility would return once the scheme ends.
However, Russ Mould, investment director at AJ Bell, said the Bank was taking the approach of “talking loudly and carrying a big stick” in its attempt to calm concerns,
He said the measures are “designed to reassure pension managers – and pension holders – that help will be provided”.
He added that the Bank’s announcement reaffirms that the bond purchases were a short-term measure and “it remains committed to withdrawing monetary stimulus and tightening monetary policy as it fights inflation”.
The mini-budget – which was announced on 23 September – pledged £45bn of tax cuts as part of a plan to boost economic growth, but the level of government borrowing required shocked investors who questioned the sustainability of the public finances.
In the aftermath of the statement, the pound hit a record low and investors demanded a much higher return for investing in government bonds, causing some to drop sharply in value.
Certain types of funds in the pension industry, which invest in bonds, were forced to start selling, sparking fears of a fresh market downturn.
On 28 September, the Bank stepped in to buy government bonds saying its decision was driven by concern over “a material risk to UK financial stability”.
It said it would buy up to £65bn bonds, with a limit of £5bn a day.
So far, the Bank has bought only around £5bn bonds in total under the programme and in its latest announcement it said stood ready to increase the size of its daily purchases. On Monday, it doubled the limit to £10bn.
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