The Bank of England said Wednesday it would try to stabilize the British market by purchasing long-dated bonds. File Photo by Andy Rain/ EPA-EFE
Sept. 28 (UPI) -- The Bank of England said Wednesday it will start temporarily purchasing long-dated British government bonds to ease market instability caused by the "mini-budget" put out by the new administration of Prime Minister Liz Truss.
The bank said it was watching the "significant repricing" of British global assets in recent days, which has affected the country's debt.
"Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability," the bank said in a statement. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
"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 U.K. households and businesses."
The news comes as the International Monetary Fund on Tuesday called on Truss to reconsider the government's plans to cut taxes to prevent stoking inequality. The fund said the so-called "mini-budget" by Chancellor of the Exchequer Kwasi Kwarteng undermined the Bank of England's efforts to tackle inflation.
Moody's said the $47.6 billion tax cut proposed is largely unfunded and is "credit negative."
"A sustained confidence shock arising from market concerns over the credibility of the government's fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the U.K.'s debt affordability," Moody's said, according to The Guardian.
On Monday, the value of Britain's pound tumbled to its lowest point against the U.S. dollar since 1985, officials said. The pound had dropped 5% to $1.0327 as bond markets continued to demand rates in return for investor cash at levels last seen in 2008.
As of Wednesday, the pounds had improved to $1.06 of the U.S. dollar.