London Daily

Focus on the big picture.
Saturday, Nov 29, 2025

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
250 Still Missing in the Massive Fire, 94 Killed. One Day After the Disaster: Survivor Rescued on the 16th Floor
Trump: National Guard Soldier Who Was Shot in Washington Has Died; Second Soldier Fighting for His Life
UK Chancellor Reeves Defends Tax Rises as Essential to Reduce Child Poverty and Stabilise Public Finances
No Evidence Found for Claim That UK Schools Are Shifting to Teaching American English
European Powers Urge Israel to Halt West Bank Settler Violence Amid Surge in Attacks
"I Would Have Given Her a Kidney": She Lent Bezos’s Ex-Wife $1,000 — and Received Millions in Return
European States Approve First-ever Military-Grade Surveillance Network via ESA
UK to Slash Key Pension Tax Perk, Targeting High Earners Under New Budget
UK Government Announces £150 Annual Cut to Household Energy Bills Through Levy Reforms
UK Court Hears Challenge to Ban on Palestine Action as Critics Decry Heavy-Handed Measures
Investors Rush Into UK Gilts and Sterling After Budget Eases Fiscal Concerns
UK to Raise Online Betting Taxes by £1.1 Billion Under New Budget — Firms Warn of Fallout
Lamine Yamal? The ‘Heir to Messi’ Lost to Barcelona — and the Kingdom Is in a Frenzy
Warner Music Group Drops Suit Against Suno, Launches Licensed AI-Music Deal
HP to Cut up to 6,000 Jobs Globally as It Ramps Up AI Integration
MediaWorld Sold iPad Air for €15 — Then Asked Customers to Return Them or Pay More
UK Prime Minister Sir Keir Starmer Promises ‘Full-Time’ Education for All Children as School Attendance Slips
UK Extends Sugar Tax to Sweetened Milkshakes and Lattes in 2028 Health Push
UK Government Backs £49 Billion Plan for Heathrow Third Runway and Expansion
UK Gambling Firms Report £1bn Surge in Annual Profits as Pressure Mounts for Higher Betting Taxes
UK Shares Advance Ahead of Budget as Financials and Consumer Staples Lead Gains
Domino’s UK CEO Andrew Rennie Steps Down Amid Strategic Reset
UK Economy Stalls as Reeves Faces First Budget Test
UK Economy’s Weak Start Adds Pressure on Prime Minister Starmer
UK Government Acknowledges Billionaire Exodus Amid Tax Rise Concerns
UK Budget 2025: Markets Brace as Chancellor Faces Fiscal Tightrope
UK Unveils Strategic Plan to Secure Critical Mineral Supply Chains
UK Taskforce Calls for Radical Reset of Nuclear Regulation to Cut Costs and Accelerate Build
UK Government Launches Consultation on Major Overhaul of Settlement Rules
Google Struggles to Meet AI Demand as Infrastructure, Energy and Supply-Chain Gaps Deepen
Car Parts Leader Warns Europe Faces Heavy Job Losses in ‘Darwinian’ Auto Shake-Out
Arsenal Move Six Points Clear After Eze’s Historic Hat-Trick in Derby Rout
Wealthy New Yorkers Weigh Second Homes as the ‘Mamdani Effect’ Ripples Through Luxury Markets
Families Accuse OpenAI of Enabling ‘AI-Driven Delusions’ After Multiple Suicides
UK Unveils Critical-Minerals Strategy to Break China Supply-Chain Grip
Taylor Swift’s “The Fate of Ophelia” Extends U.K. No. 1 Run to Five Weeks
UK VPN Sign-Ups Surge by Over 1,400 % as Age-Verification Law Takes Effect
Former MEP Nathan Gill Jailed for Over Ten Years After Taking Pro-Russia Bribes
Majority of UK Entrepreneurs Regard Government as ‘Anti-Business’, Survey Shows
UK’s Starmer and US President Trump Align as Geneva Talks Probe Ukraine Peace Plan
UK Prime Minister Signals Former Prince Andrew Should Testify to US Epstein Inquiry
Royal Navy Deploys HMS Severn to Shadow Russian Corvette and Tanker Off UK Coast
China’s Wedding Boom: Nightclubs, Mountains and a Demographic Reset
Fugees Founding Member Pras Michel Sentenced to 14 Years in High-Profile US Foreign Influence Case
WhatsApp’s Unexpected Rise Reshapes American Messaging Habits
United States: Judge Dressed Up as Elvis During Hearings – and Was Forced to Resign
Johnson Blasts ‘Incoherent’ Covid Inquiry Findings Amid Report’s Harsh Critique of His Government
Lord Rothermere Secures £500 Million Deal to Acquire Telegraph Titles
Maduro Tightens Security Measures as U.S. Strike Threat Intensifies
U.S. Envoys Deliver Ultimatum to Ukraine: Sign Peace Deal by Thursday or Risk Losing American Support
×