London Daily

Focus on the big picture.
Monday, Aug 03, 2026

Government borrowing costs hit  20-year high after Bank of England confirms bond-buying will end on Friday

Government borrowing costs hit 20-year high after Bank of England confirms bond-buying will end on Friday

The pound lost a cent against the dollar on Tuesday after the governor of the Bank of England stated his commitment to end the emergency intervention in the bond market.
UK government borrowing costs have hit a 20-year high after the Bank of England confirmed its emergency bond-buying programme will end on Friday as planned.

On Wednesday morning, it said all temporary and targeted purchases of UK government bonds, known as gilts, would stop.

This has been the position throughout and has been "made absolutely clear in contact with the banks at senior levels", the Bank said in a statement.

However, the clarification of its position did little to soothe investor nerves, with a sell-off taking 20 and 30-year gilt yields - the rate demanded to hold government debt - to their highest level since 2002.

Both exceeded 5.1% earlier on Wednesday.

The emergency 13-day bond buying programme was started to avoid "dysfunction" in the pension market which took hold amid bond market unease over UK borrowing requirements following the government's mini-budget.

The programme is aimed at tackling the consequences of rising interest rates on government bonds, which increased the cost of holding the bonds and resulted in pension funds facing a liquidity crunch.

There had earlier been suggestions that the Bank could backtrack, however, and extend the bond-buying beyond Friday's cut-off.

The Financial Times said the Bank had been privately telling those working in pension funds that it could be extended.

This came despite the governor, Andrew Bailey, firmly stating pension funds had "three days left... to get this done" at an event in Washington on Tuesday evening.

In its statement on Wednesday, the Bank reaffirmed it would continue to support the pension markets in other ways beyond Friday.

This would be done via the Bank's temporary yet open-ended measure to help lenders facing liquidity issues who work with the corner of the pensions market that had experienced difficulties. The measure was announced on Monday.

The Financial Times report said those involved in derivatives needed more time to avoid the forced selling that led to the Bank's intervention on 28 September.

It was revealed later in the day that the Bank accepted £1.9bn worth of offers in its daily index-linked bond buy-back operation.

It also accepted all £2.3754bn of long-dated conventional gilts which it was offered - the highest sum since the scheme began on 28 September but well below the £5bn it would have been prepared to buy.

The pound clawed back some of the losses versus the dollar incurred on Tuesday after Mr Bailey's refusal to extend the bond-buying support beyond Friday, trading just shy of $1.11.

30-year bond yields were hovering just below their level before the Bank's first intervention - at 4.9% - after striking the 20-year high earlier in the day.

The thinking behind the emergency bond-buying has been questioned by the Treasury Committee of MPs.

The chair of the Treasury Committee, Mel Stride, wrote to the deputy governor at the Bank on Wednesday and asked for an update on the emergency interventions, querying what further action will be required by the Bank to prevent risks to financial stability.

Mr Stride also asked how the Bank decided to expand its emergency intervention on Monday, to launch new liquidity support to lenders and start buying index linked gilts (with interest rates in line with inflation). He questioned why these interventions were not part of the original intervention announced on 28 September.

What is the Bank of England's bond-buying programme?

The Bank signalled it is ready to increase interest rates again in November as it fights to bring inflation down to 2%. Most recent figures show inflation was at 9.9%.

Once again the Bank's chief economist, Huw Pill, said interest rates likely need to rise.

"At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks."

The Bank's monthly financial policy summary was released on Wednesday and warned UK households will become more vulnerable to financial shocks.

"Rises in the cost of living and interest rates will increase pressure on UK household finances and make households more vulnerable to shocks," the Bank's Financial Policy Summary and Record said.

Further warnings on the economic health of businesses were issued: "For businesses, higher costs, lower household demand and rising interest rates will reduce earnings. Some may find it harder to repay debts."

Households may be less impacted by rising interest rates due to being on fixed-term repayment plans and having less debt, the Bank said. Accordingly there is a reduced risk of defaulting on repayments.

"People have less debt (relative to their incomes) and the share of high loan-to-value mortgages is much lower than before the global financial crisis. This reduces the risk of them defaulting on debt and banks are now required to be flexible in their response," the report said.

The banks are in a better position than the financial crash too and are able to help households should they fall into financial difficulty, the Bank concluded.

"The UK banking sector is substantially more resilient than before the global financial crisis, with significantly higher levels of capital and liquidity. They can continue to support households and businesses even if economic conditions get worse."
Newsletter

Related Articles

0:00
0:00
Close
Triple Lock Lifts UK State Pension but Leaves a Wider Retirement Gap
Danube Drought Forces Hungary’s Paks Nuclear Plant Into Full Shutdown
Ceuta Death Toll Rises as Spain and Europe Clash Over Border Response
Cuba’s Grid Fails Again as Fuel Crisis Deepens
Nazca Lines Flight Crash Kills Thirteen as Peru Suspends Aerodiana
Modern Slavery Decisions Broaden the Al Fayed Inquiry’s Frame
FIFA’s Retreat Leaves a Larger Question Over Who Guards the Game
Two Firefighting Crew Members Die in Helicopter Collision West of Athens
Public Sector Automation Through Artificial Intelligence
Regional Investment Beyond London
Protection of Strategic Technology Assets
UK Competition Regulator Blocks Major Foreign Takeover of British Quantum Computing Firm
UK Government Commits Two Billion Pounds to Modernise Northern Rail Network
UK Parliament Approves Planning Reforms to Accelerate Housing Construction on Green Belt Land
Scotland Approves Major Floating Offshore Wind Expansion in the North Sea
United Kingdom and European Union Sign Defence and Critical Minerals Cooperation Agreement
NHS Invests Five Hundred Million Pounds in Artificial Intelligence Diagnostics to Reduce Waiting Lists
Bank of England Cuts Interest Rate to Three Point Seven Five Percent as Inflation Pressures Ease
Ceuta Border Surge Recasts Europe’s Migration Debate
Burnham Promises a Harder Channel Response as Crossings Test His New Government
Glasgow 2026 Commonwealth Games End With Organisers Defending Smaller Format as Sustainable Model
Reform UK Faces Labour Criticism Over Nigel Farage Leadership Return Discussions
Environment Agency Restricts River Thames Navigation as Low Water Levels Raise Concerns
UK Government Launches Free Bus Travel Scheme for Children During Summer Holidays
Chancellor Rachel Reeves Confirms October Budget Date and Plans Wider Regional Funding Shift
Prime Minister Andy Burnham Promises Tougher Action on Small Boat Crossings Amid European Migration Pressure
UK Economic Growth Forecast Raised Slightly as Inflation Expected to Remain Above Target Until 2029
National Farmers Union Warns of Food Shortage Risks as Drought and Heatwaves Damage UK Crops
Finland Deploys Commercial-Scale Thermal Batteries Using Crushed Rock to Store Renewable Grid Energy
Valued at $109 Million: F-35B Fighter Jet Crashes in Southern California
Sainsbury Agrees to Sell Argos in £120 Million Deal to Private Consortium
High Court Clears Way for Construction of Chinese Embassy at Royal Mint Court
UK Fuel Prices Climb to Multi-Month Highs as Strait of Hormuz Tensions Disrupt Oil Supplies
Severe Summer Drought and Record Heat Put UK Harvests at Risk
Prime Minister Andy Burnham Faces Labour Backbench Opposition Over Potential Support for New North Sea Oil and Gas Drilling
Bank of England Warns Inflation Will Stay Above 3% as Middle East Energy Shock Prolongs Cost-of-Living Pressures
Andy Burnham has Announces Plans to Redistribute Income Tax Revenue to English Mayors
Early-Release Scheme Faces Fresh Scrutiny as Reoffending and Prison Recalls Rise
Police Phone Checks Followed Report on Murder of MI5 Agent Inside Sinn Féin
Archbishop of Canterbury Reaffirms £100 Million Reparative Justice Fund During Ghana Visit
Charities Allege French Police Used Tear Gas Against Channel Migrants
Norwegian Teenager Convicted Over Iran-Linked Murder Plot in Britain
Christian Organisations File Charity Complaints Against Amnesty International UK
Ofgem Tightens Grid Connection Rules for New Data Centres
FTSE 100 Reaches Record High Despite Global Technology Sell-Off
Millions of UK Households Urged to Check Eligibility for Winter Energy Discount
Labour Restores Parliamentary Whips to Diane Abbott and Joani Reid
UK Supreme Court to Hear Challenge Over Palestine Action Ban
UK Commits More Than £8.4 Billion to Dreadnought Nuclear Submarine Programme
England Declares Severe Drought as Wildfire Burns Near Sizewell Nuclear Site
×