The Bank of England has been forced to take emergency action in order to stop a run on Britain’s pension funds, following the market response to finance minister Kwasi Kwarteng’s mini-budget which prompted fears of a 2008-style financial crisis.
The bank said the fallout from a dramatic rise in government borrowing costs since Kwarteng’s statement saw it forced to intervene to protect the UK’s financial system.
City sources said the surprise move, less than a week after Kwarteng’s unfunded tax giveaways, was necessary to halt a “doom loop” in the bond markets that threatened to drain pension funds of cash, leaving them at risk of insolvency.
With the financial health of Britain’s biggest pensions and insurance companies on the line, which together manage trillions of pounds of people’s cash, the bank felt compelled to act.
In a swift reversal of the policy position announced just one day before Kwarteng’s intervention, the bank said it was setting aside £65bn to buy bonds over the next 13 working days to ease pressure on pension funds and insurance companies.
British Prime Minister Liz Truss was facing calls from within her own party to sack Kwarteng or face a mutiny, with many said to be furious at what they consider to be reckless policymaking.
Conservative MPs claimed that Kwarteng would have to resign for the party to survive the financial crisis as they urged the prime minister to backtrack on her plan to scrap the top rate of income tax, which they said had not been well received by the public.
Opposition leader Keir Starmer accused the government of “losing control of the economy” and called for parliament to reconvene early, with lawmakers currently on a break.