Pension funds rely on the stability of government bonds to operate.
The Bank of England had to step in and buy up massive amounts of debt to shore up prices ‘to save pensions’, it has been claimed.
The UK’s central bank was forced to take steps to prevent a ‘material risk to UK financial stability’ after the Government announced un-costed plans to borrow billions of pounds to fund a raft of tax cuts last week.
The bank’s move, on a scale usually reserved for massive global financial crises, was reportedly taken because British pensions were in danger.
Sky News economics editor Ed Conway said: ‘Had they not intervened, there would have been mass insolvencies of pension funds by Wednesday afternoon’.
Insiders quoted by the outlet reportedly said bank officials believed they were witnessing a ‘dynamic run’ similar to the run ‘which destroyed Northern Rock in 2007.
Pension funds rely on the stability of government bonds to operate, and this have been decimated by the Government’s economic proposals on Friday.
Liz Truss and Kwasi Kwarteng signed off on un-costed plans to borrow billions of pounds to fund a raft of tax cuts for everyone, including for society’s richest.
They argue it will help boost growth but given soaring inflation levels and the gloomy global economic picture, investors fear the government has written a cheque it won’t be able to cash.
This sent value of the pound plummeting and the cost of borrowing that the hit record highs – fuelling massive instability in the bonds market.
The Bank of England (BoE) came back with a ‘significant’ response, and the governor announced an emergency policy.
The bank’s plan it to stop the situation deteriorating further by buying up Government debt in a bid to stabilise the soaring interest rates the Government must pay.
It also suspended plans to launch an auction of government bonds after a collapse in prices.
A statement from the BoE read: ‘Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.
‘This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
‘In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.’
A Treasury spokesperson acknowledged ‘significant [market] volatility in recent days with referencing the impact of its own mini-budget and said the Bank was taking action ‘to restore orderly market conditions’.
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