Britain’s pension funds were on Wednesday at the centre of the financial crisis sparked by the mini-budget forcing the Bank of England to launch a £65 billion emergency bailout.
The Bank warned of a “material risk to UK financial stability” and stepped in to buy long-term gilts, as plunging markets for UK debt sent borrowing costs spiralling and forced pension funds to dump their assets. Economists compared the crisis to the run of withdrawals that led to the collapse of Northern Rock in the financial crisis.
However, the move by Governor Andrew Bailey helped restore some calm to markets, and pensions experts said retirement pots were not under threat. Nevertheless, worries that Mr Kwarteng’s radical mini-Budget will trigger further shocks for investors in gilts wiped billions of pounds off the stock market value of Britain’s biggest pension funds.
The Bank hopes to halt a domino effect in the City by temporarily suspending plans to offload £80bn of gilts held on its balance sheet. Instead for 13 days it will revert to buying them at a rate of £5bn per day using newly created money in a process known as quantitative easing.
The measures sparked a sharp rally in the market for the 30-year gilts that pension funds had been forced to sell. The cost of such borrowing fell by more than 1 percentage point, a significant downward move. Meanwhile the pound fell initially after the Bank’s announcement on fears of further inflation but recovered to finish roughly flat at nearly $1.09 against the dollar.
Publication Date: 28 Sept 2022
Publication Site: UK Telegraph