The Bank of England will likely further delay the planned sale of billions of British government bonds. The central bank wants to ensure more stability in the bond markets after the turmoil caused by the failed budget plans of the new Prime Minister, Liz Truss.
This was reported by the British business newspaper Financial Times on Tuesday.
The new British Chancellor of the Exchequer, Jeremy Hunt, has already reversed almost all tax cuts presented by his predecessor Kwasi Kwarteng and Truss on Monday. The tax cuts, designed to boost economic growth, caused significant turmoil in the financial markets.
Truss and Hunt’s fired predecessor, Kwarteng, wanted to borrow a lot of money to pay for spending and tax cuts. However, investors and investors were not confident in the plans and feared that the UK’s debt burden would become unsustainable and demanded more interest to lend money to the UK. Therefore, the British central bank was forced to intervene and bought billions in government bonds to calm the bond markets. Those aid purchases have now stopped.
On the other hand, the Bank of England is phasing out the support policy introduced in March 2020 to steer the British economy through the corona crisis. Then interest rates were cut sharply, and the central bank bought billions in British bonds to calm the markets and support the economy.
The central bank has raised interest rates in the United Kingdom several times in the fight against high inflation. The central bank is also expected to start scaling down its portfolio of government bonds, which were bought up during the pandemic. The sale of these government bonds, with a total size of 838 billion pounds, was scheduled to start on October 6, but has already been postponed due to unease about the new government’s budget plans.