Bank of England warns of ‘significant risk’ to UK financial security

The central bank said it would widen the scope of its action launched following the turmoil in the mini-budget market (Picture: Reuters)

The Bank of England said it would further strengthen its emergency bond buying plan.

He warned that an ongoing rout in the gilt market poses a “significant risk to UK financial stability”.

The central bank said it would broaden the scope of its action launched in the wake of turmoil in the mini-budget market.

It will now include purchases of pegged UK government bonds amid concerns over another gilt ‘fire sale’.

It comes after selling off government bonds – also known as gilts – resumed yesterday as investor concerns did not ease.

This is despite action by the Bank of England to double its daily bond purchase limit and Chancellor Kwasi Kwarteng’s decision to bring forward his new budget plan and independent economic forecast to October 31.

People stand outside the Bank of England in the City of London last week

People stand outside the Bank of England in the City of London last week (Picture: Reuters)

Long-term gilt prices fell, pushing 30-year bond yields to 4.7% on Monday – their highest level since the Bank of England was forced to intervene last month to avoid a mini financial market crisis.

The Bank said: “The start of this week saw another significant repricing of UK government debt, particularly index-linked gilts.

“The dysfunction of this market and the prospect of a self-reinforcing ‘fire selling’ dynamic poses a significant risk to UK financial stability.”

He added that his latest efforts “will act as an additional safety net to restore orderly market conditions.”

This morning Deputy First Minister Therese Coffey insisted UK public finances were in ‘good shape’ after the Institute for Fiscal Studies warned that £60billion spending cuts would be necessary to control the finances.

Ms Coffey denied that Chancellor Kwasi Kwarteng presented his medium-term budget plan because the markets were scared.

She told Sky News: ‘I think he has decided we are in a good state and we will continue to discuss this in government and with Parliament over the coming weeks.

Ms Coffey was unaware of the new Bank of England action at the time she gave her interview.

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Sarah J. Greer