Bank of England confirms bond-buying programme will end on Friday

The Bank of England has confirmed its emergency bond-buying programme will end on Friday as planned after reports suggested it might extend the support for pension funds.

On Wednesday morning, it said all temporary and targeted purchases of UK government bonds, known as gilts, will end.

This has been the position throughout and has been “made absolutely clear in contact with the banks at senior levels”, the statement said.

The Bank’s emergency, 13 day, bond buying programme was started to avoid “dysfunction” in the pension market spreading UK households and businesses.

The action is aimed at tackling the consequences of rising interest rates on government bonds, which increased the cost of holding the bonds and resulted in pension funds facing a liquidity crunch.

There had been earlier suggestions the Bank of England could backtrack, however.

The Financial Times had reported the Bank has been privately telling those working in pension funds that it could extend its bond-buying programme beyond Friday.

This came despite the governor, Andrew Bailey, firmly stating pension funds had “three days left… to get this done” at an event in Washington on Tuesday evening.

In its statement on Wednesday, the Bank reaffirmed it would continue to support the pension markets in other ways beyond Friday.

This would be done via the Bank’s temporary yet open-ended measure to help lenders facing liquidity issues who work with the corner of the pensions market that had experienced difficulties. The measure was announced on Monday.

The Financial Times report said those involved in derivatives, the corner of the market that required the Bank of England intervention, needed more time to avoid the forced selling that led to the Bank’s 28 September intervention.

Read more:
What on earth is happening in UK markets?
What are bonds and where do they fit in the mini-budget crisis?

Mr Bailey’s remarks in Washington prompted a sharp fall in the pound in overnight trading, dipping below $1.10.

The performance of the pound is an indicator of whether investors have faith in the UK economy. A drop in the pound signals a drop in confidence in the economy.

Sterling made some gains against the dollar on Wednesday morning, but was still worth less than $1.10, lower than the $1.117 that could be bought before Mr Bailey’s announcement.