Ahead of Thursday’s meeting, when the Bank is expected to raise its key rate by up to one percentage point to 3.25%, officials unloaded 750 million pounds of government bonds, known as gilts, to commercial banks and insurance companies as part of a plan to sell £80bn by the end of next year. The move marks a major U-turn for Britain’s central bank, which is seeking to raise borrowing costs to reduce inflation that hit 10.1% in September. Despite fears that the UK government tarnished London’s reputation over the past month as a haven for investors, the sell-off was more than offset and boosted gold markets, pushing the yield on the benchmark five-year bond down 0.04% to 3.56% . Governor Andrew Bailey delayed the sale in the wake of Liz Truss’s mini-budget, which sent panic into financial markets, reduced investor demand for UK loans and sent the five-year bond yield above 5%. Mortgage lenders have hit back by raising mortgage rates by more than 6% on two-year fixed deals, leaving many homebuyers facing thousands of pounds a year in higher annual payments. The national debt is over £2 trillion, which is owed to a mix of foreign investors, pension funds and the Bank of England. Since 2008 the government has relied on Threadneedle Street to step in in times of crisis as a buyer of last resort. Under a program called quantitative easing (QE), the Bank bought increasing amounts of government debt that peaked at £875 billion in 2020. In the Budget later this month, the government is expected to announce it needs around £170bn of extra borrowing to finance the energy price cap, higher interest bills and deal with the possibility of a recession next year. Last week, Sir Robert Steeman, the chief executive of the Debt Management Office, which organizes the gold sales, said: “The market is clearly volatile, it’s under pressure and I don’t think we should pretend otherwise,” adding that volatility had been triggered by UK-specific agents. “We don’t want to be that little wild flower that strays too far from the herd, but if we can get back into the herd and if we can be seen as anything but an outlier, that’s obviously important.” Bailey is the first boss of a major central bank to actively sell bonds in the open market. The Federal Reserve has so far preferred not to buy back short-term loans when they mature as it seeks to reduce a £9tn mountain of QE. In contrast, most females are long-duration and so it will take many years to reduce the stock allowing the loans to expire. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. Analysts said allowing the auction to go ahead was a sign of confidence that markets are calm and able to absorb the extra bonds. Some international organizations fear that a sharp increase in borrowing costs by the Fed, the European Central Bank and the Bank of England through a combination of higher interest rates and a reversal of QE, called quantitative tightening, will push the global economy into recession. next year. The International Monetary Fund called on central banks to coordinate their plans to withdraw cheap credit to minimize the impact on economic growth. The World Bank has warned that a quick move to higher interest rates would hit many developing economies without giving them time to find the capital to pay higher debt bills. Many have taken out huge loans to address poverty and climate change issues. The IMF said it is concerned that the number of countries seeking financial support has risen sharply since the pandemic and financial issues are likely to become more acute if interest rates continue to rise.
