The Bank of England moved to ease concerns about the expiry at the end of this week of its emergency programme to calm turmoil in the government bond market, including a doubling of the maximum size of its planned debt buy-back today.
After finance minister Kwasi Kwarteng alarmed investors with a string of unfunded tax cuts last month, the Bank of England said on September 28 that it would temporarily buy up to £5 billion a day of gilts with a maturity of at least 20 years.
So far, the Bank of England has bought far less than the minimum daily limit, but today it said it was taking steps to ensure the scheme concludes smoothly.
"In the final week of operations, the Bank is announcing additional measures to support an orderly end of its purchase scheme," it said in a statement.
The Bank of England has so far offered to buy up to £40 billion worth of gilts but has only bought about £5 billion.
"The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5 billion in each auction," the statement said.
The maximum auction size would be announced at 9am each morning and would be set at up to £10 billion in today's operation although the central bank reserved the right to reduce offers.
The Bank of England also said it would launch a temporary expanded collateral repo facility to help banks ease liquidity pressures facing client funds caught up in the turmoil which threatened pension funds.
The liquidity insurance operations would run beyond the end of this week and would accept a wider range of collateral than usual including corporate bonds, the bank said.
In a third move, the Bank of England said it was prepared to support further easing of liquidity pressures facing liability driven investment funds through its regular Indexed Long Term Repo operations each Tuesday.
The sharp sell-off in British government bonds after Kwarteng's "mini-budget" sparked a scramble for cash by Britain's pension funds which had to post emergency collateral in Liability Driven Investments (LDIs).
