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| Bank of England bolsters plan to calm market turmoil | Bank of England bolsters plan to calm market turmoil |
| (32 minutes later) | |
| The Bank of England has announced new measures aimed at ensuring an "orderly end" to its emergency bond buying scheme, which it brought in when some pension funds were at risk of collapse. | The Bank of England has announced new measures aimed at ensuring an "orderly end" to its emergency bond buying scheme, which it brought in when some pension funds were at risk of collapse. |
| The Bank says that it will now buy up to £10bn of government bonds on Monday, double the previous limit of £5bn. | |
| So far the Bank has bought only around £5bn bonds under the £65bn programme. | So far the Bank has bought only around £5bn bonds under the £65bn programme. |
| The scheme was introduced after the government's mini-budget sparked turmoil on financial markets. | The scheme was introduced after the government's mini-budget sparked turmoil on financial markets. |
| The Bank reaffirmed that the scheme would end at the end of this week on 14 October. | |
| In the aftermath of the mini-budget, the pound hit a record low and investors had demanded a much higher return for investing in government bonds, causing some to halve in value. | |
| Certain types of funds in the pension industry, which invest in bonds, were forced to start selling, sparking fears of a fresh market downturn. | |
| When the Bank stepped in last month, it said its decision to buy government bonds was driven by concern over "a material risk to UK financial stability." | |
| 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 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. |
| But a collapse in the price of those bonds in the aftermath of the mini-budget was forcing some funds to rush to sell bonds further forcing down the price. | But a collapse in the price of those bonds in the aftermath of the mini-budget was forcing some funds to rush to sell bonds further forcing down the price. |
| If that process had continued, there was a risk that those pension funds could have got to a position where they could not pay their debts. | If that process had continued, there was a risk that those pension funds could have got to a position where they could not pay their debts. |
| In its latest statement, the Bank said there had been "substantial progress" in addressing the financial problems facing these funds, which had faced the prospect of having to make forced sales of £50bn of bonds. | |
| The Bank has not bought as many government bonds as it had allowed for under the £65bn programme, and will make available all the unused capacity this week. | |
| It has also announced further assistance for pension funds to help improve their financial position. | |
| Before the mini-budget, the yield on government borrowing over a 30-year period stood at about 3.7%. The yield is effectively the interest rate. | |
| After the mini-budget it jumped to 5.1% until the Bank's intervention pushed the rate back down. However, in recent days it has crept back up again to around 4.4%. |