The Bank of England yesterday said it would introduce temporary measures aimed at easing liquidity pressures that arose after the UK government’s budget shocked markets.
The British central bank “announces additional measures to support market functioning,” it said in a statement, adding that it is ready to increase the size of its UK government bond purchases under an emergency measure due to end on Friday.
The bank said it is launching a Temporary Expanded Collateral Repo Facility, enabling banks to “help to ease liquidity pressures” facing client funds beyond the end of this week.
Photo: Reuters
Markets have been spooked by the recent budget announcement from the government of new British Prime Minister Liz Truss.
The unveiling of debt-fueled tax cuts aimed at supporting Britain’s recession-threatened economy sent UK bond yields soaring and the pound tumbling to a record low against the US dollar.
That triggered the emergency buying of long-dated bonds by the bank.
The central bank has so far made purchases of so-called gilts totaling around ￡5 billion (US$5.54 billion), far less than its ￡65 billion limit.
The purchases are “to restore market functioning in long-dated government bonds and reduce risks from contagion to credit conditions for UK households and businesses,” the bank said in the statement.
Fitch Ratings last week lowered the outlook on its credit rating for British government debt to negative from stable.
The pound was down slightly against the US dollar yesterday, but comfortably above the record-low level that was close to parity.
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