LondonCNN Business —
The Bank of England is struggling to contain a crisis triggered by the UK government’s brash plans to borrow heavily to pay for tax cuts, feeding fears that the country’s financial markets could once again spin out of control.
Almost 20 days after Finance Minister Kwasi Kwarteng unveiled his much-criticized plan to jumpstart the economy, sparking an investor revolt, the UK bond market and the British pound remain under huge stress — despite three emergency interventions by the central bank.
Yields on benchmark 10-year UK government bonds climbed above 4.59% on Wednesday, near where they were in the immediate aftermath of Kwarteng’s announcement last month. The yield on 30-year bonds also rocketed above 5%. Yields rise as bond prices fall, pushing up the cost of borrowing for the government, mortgage holders and businesses.
The country’s central bank is in a difficult position. It’s trying to restore the UK government’s lost credibility in markets, though its toolkit isn’t designed for this kind of effort.
“They can’t do anything to address the root of the problem, which is confidence in UK assets,” said Richard McGuire, head of rates strategy at Rabobank.
Yet after extra support for markets announced this week fell flat, the Bank of England faces calls to do more to help avert another meltdown. The focus is now on whether it should extend the £65 billion ($72 billion) bond-buying program that it announced in late September beyond its Friday end date.