London Daily

Focus on the big picture.
Sunday, Apr 12, 2026

Bank of England steps in to calm markets

Bank of England steps in to calm markets

The Bank of England has said it will step in to calm markets after the government's tax-cutting plans sparked a fall in the pound and caused borrowing costs to surge.

It warned that if the market volatility continued there would be a "material risk to UK financial stability".

The Bank will start buying government bonds at an "urgent pace" to help restore "orderly market conditions".

The pound, which has been volatile, rose 1.4% against the dollar to $1.08.

It comes after the currency hit a record low on Monday following the chancellor's mini-budget, which pledged $45bn worth of tax cuts, funded by borrowing, as part of a plan to boost economic growth.

The government borrows money to fund its spending plans by selling bonds, or "gilts", to investors such as pension funds and big banks on international markets.

The investor then gets to receive a stream of future payments, or "yield", based on the interest rate the government has offered.

Due to concerns over whether the government's plan will work, investors have been demanding much higher interest rates to lend to the UK government. But the Bank now hopes to lower these prices by buying its bonds.

The government's long-term borrowing costs fell after the bank's intervention on Wednesday, although still remains high.


Pension pressure


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

So called Liability Driven Investment funds - which support defined benefit pensions schemes - were facing a collapse in the value of the bonds they hold, which in turn could have forced them to rush to sell other assets, sparking yet more market panic.

However, industry group the Pensions and Lifetime Savings Association (PLSA) said that "pension schemes are long-term investors and moments like this come from time to time".

"While this is a complex situation as there has been a lot of volatility in the gilt markets in recent days, we would not expect any significant issues for savers," said Joe Dabrowski, deputy director of the PLSA.

Nevertheless, he said there will be "some operational challenges and pressures on liquidity" in the short term.

Mr Dabrowski added that "this is not ideal, [but] they are challenges that can be overcome and the statement from the Bank of England is a helpful step to achieving that".

The Bank has already said it will "not hesitate" to hike interest rates to try and protect the pound and try and stem surging prices. Some economists have predicted the Bank of England will raise the interest rate from the current 2.25% to 5.8% by next spring.

The projection has led hundreds of mortgage products to be taken off the market.

The Bank said its bond purchases would be "time limited" and carried out on "whatever scale is necessary" to ease investor concerns.

It will also postpone the planned start of a gilt sale programme that was only announced last week.

Paul Dales, chief UK economist at Capital Economics, said the Bank had been forced to step in to avoid the early stages of a financial crisis and warned fears over the economic outlook were growing.

"This shows that the Bank is going to do all it can to prevent a financial crisis and it is already working. While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position.

"It wouldn't be a huge surprise if another problem in the financial markets popped up before long."


Despite the Bank's action, the pound continued to fall with some analysts warning it could even reach parity with the dollar.

"What today shows us, is that the market doesn't see this as a problem that just the Bank of England can clean up," she said. "This is just firefighting," said Jane Foley, a currency strategist at Rabobank.

She said pressure was growing on the government to make clear the financial cost of its tax cut and spending plans.

There has been widespread criticism of the government's plan, with International Monetary Fund warning on Tuesday that the measures are likely to fuel the cost-of-living crisis and increase inequality.

The government says it will not reverse its tax cuts, but has promised to release further plans to boost growth and reduce public debt on 23 November.

In a statement, the Treasury acknowledged global financial markets had seen "significant volatility" in recent days.

It said Chancellor Kwasi Kwarteng was "committed" to the Bank's independence, adding: "The government will continue to work closely with the Bank in support of its financial stability and inflation objectives."

But Labour called on the chancellor to urgently clarify how he planned to stabilise the economy.

Shadow chancellor Rachel Reeves said people would be "deeply worried" about the cost of their mortgage, about their pensions, and the cost of living.

"The Chancellor must make an urgent statement on how he is going to fix the crisis that he has made."

Newsletter

Related Articles

0:00
0:00
Close
Meghan Markle Plans Exclusive Women-Focused Retreat During Australia Visit
Starmer and Trump Hold Strategic Talks on Securing Strait of Hormuz Amid Rising Tensions
Unofficial Australia Visit by Prince Harry and Meghan Expected to Stir Tensions with Royal Circles
Pipeline Attack Cuts Significant Share of Saudi Arabia’s Oil Export Capacity
UK Stocks Rise on Ceasefire Momentum and Renewed Focus on Diplomacy
UK to Hold Further Strategic Talks on Strait of Hormuz Security
Starmer Voices Frustration as Global Tensions Drive Up UK Energy Costs
UK Students Voice Concern Over Proposal for Automatic Military Draft Registration
Rising Volatility Drives Uncertainty in UK Fuel and Petrol Prices
UK Moves to Deploy ‘Skyhammer’ Anti-Drone System to Strengthen Airspace Defense
New Analysis Explores UK Budget Mechanics in ‘Behind the Blue’ Feature
Man Arrested After Four Die in Channel Crossing Tragedy
UK Tightens Immigration Framework with New Sponsor Rules and Fee Increases
UK Foreign Secretary Highlights Impact of Intensified Strikes in Lebanon
UK Urges Inclusion of Lebanon in US-Iran Ceasefire Framework
UK Stocks Ease as Ceasefire Doubts in Middle East Weigh on Investor Confidence
UK Reassesses Cloud Strategy Amid Criticism Over Limited Support Measures
UK Calls for Full and Toll-Free Access Through Strait of Hormuz Amid Rising Tensions
Starmer Signals Strategic Shift for Britain Amid Escalating Iran-Linked Tensions
UK Issues Firm Warning to Russia Over Covert Underwater Military Activity
OpenAI Halts Stargate UK Project, Casting Uncertainty Over Britain’s AI Expansion Plans
Starmer Voices Frustration Over Global Pressures Driving UK Energy Costs Higher
UK Deploys Military Assets to Protect Undersea Cables From Suspected Russian Threat
Canada Aligns With US, UK and Australia as Europe Prepares Major Digital Border Overhaul
Meghan Markle’s Planned Australia Appearance Sparks Fresh Speculation
Starmer Warns Sustained Effort Needed to Ensure US–Iran Ceasefire Holds
UK to Partner with Shipping Industry to Rebuild Confidence in Strait of Hormuz, Cooper Says
UK Interest Rate Expectations Ease Following US–Iran Ceasefire Agreement
Starmer Signals Major Effort Needed to Fully Reopen Strait of Hormuz During Gulf Visit
UK Fuel Prices Face Ongoing Volatility Amid Global Pressures and Domestic Factors
Kanye West’s Planned Italy Festival Appearance Draws Debate After UK Entry Ban
Smuggling Routes Shift Toward Belgium as Migrant Crossings to UK Evolve
Ceasefire Offers Potential Relief for UK Fuel and Food Prices Amid Ongoing Uncertainty
Iran Conflict Raises Questions Over UK’s Global Influence and Military Preparedness
Senator McConnell Visits Kentucky to Highlight Federal Investment in Local Projects
Kanye West Barred from Entering UK as Legal Grounds Come into Focus
UK Denies Visa to Kanye West After Sponsors Withdraw from Wireless Festival
Trump-Era Forest Service Restructuring Leads to Closure of UK Lab Focused on Kentucky Woodland Health
Foreign Students in the UK Describe Harsh Living Conditions and Financial Pressures
Reform UK Proposes Visa Restrictions on Nations Pursuing Reparations Claims
Public Reaction Divides Over UK Decision to Bar Kanye West
Calls Grow for UK to Review US Base Access Following Concerns Over Escalating Rhetoric
UK Indicates It Will Not Permit Use of Its Bases for Potential US Strikes on Iran’s Energy Infrastructure
UK Prime Minister Defends Decision to Bar Kanye West, Questions Festival Booking
UK Accelerates Efforts to Harmonise Medical Technology Rules with United States
Wireless Festival Cancelled After Kanye West Denied Entry to the United Kingdom
Australia’s most decorated living soldier was arrested at Sydney Airport and charged with five counts of war-crime murder for the killing of unarmed Afghan civilians
The CIA’s Secret Technology That Can Find You by Your Heartbeat Successfully Locates Downed Airman
Operation Europe: Trump Deploys Vance to Hungary to Save the EU
King Charles Faces Criticism From Some UK Christians Over Absence of Easter Message
×