Bank of England intervenes a second time to calm markets after ‘material risk’ to UK financial stability

The Bank has made several announcements so far this month relating the the Uk economy

The Bank of England has warned of a “material risk”to the UK’s financial stability.

This comes as government borrowing continued to rise yesterday and the announcement from the Bank of England of additional measures to support market functioning and an orderly end to its gilt purchase scheme.

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Last month, The Bank of England announced it would carry out temporary purchases of “long-dated” UK government bonds from September 28.

The bank will now purchase index-linked gilts, these being the purchase of government bonds which have an interest rate which is in line with inflation.

This move from the bank comes following its Monday announcement that it will double the amount of bonds it would buy alongside chancellor Kwasi Kwarteng’s decision to bring forward the date of his plan to balance the government’s finances failed to give significant reassurance markets.

A spokesperson for the Bank of England said: “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.

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“To achieve this, the Bank will carry out temporary purchases of long-dated UK government bonds from September 28.

“The purpose of these purchases will be to restore orderly market conditions.

“The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury.”

What is a Gilt?

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According to Forbes magazine, when the Uk government issues ‘gilts’ it borrows money from buyers.

This borrowing could be short term or last as long as several decades.

With gilts, the annual interest rate paid over the lifetime of the bond is known as the ‘coupon’ and is expressed as a percentage of the gilt’s face value