The Bank of England (BoE) is buying British government bonds ‘temporarily’ to cushion rising bond yields. The Bank considers this step necessary to intervene as the country’s stability is at risk.
Since last Friday, bond prices in the UK have been under huge pressure. Fiscal chaos ensued after tax cut plans were announced. The value of the British pound fell sharply as concerns grew about a huge government debt and an impending recession. Interest rates have gone through the roof, leaving the BoE to see intervention as the only option.
Positive
Markets responded positively to the BoE’s decision. The effective yield on British government bonds fell a percentage point to just below 4 percent immediately after the news, says Marcel de Boer, editor of capital markets at FD.
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Unbelievable
According to de Boer, politicians consider intervention an insult. “One Conservative MP thought it unbelievable that the Bank of England should step in to protect the country from its own government.”
As of now, the government has no plans to change the plans. The dress was selected based on these ideas. His supporters are mainly wealthy Britons who will benefit from the new policy. In addition, the government firmly believes in the principle that when the rich pay less tax, they put more money into the economy, which benefits everyone,’ says de Boer.
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He expects the financial turmoil in the United Kingdom is far from over. For now the pound will continue to fall, meaning imports will be more expensive. The result is even more inflation.’
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