UK Central Bank Announces Additional Measures, Yet 30-Year Government Bond Yields Rise for 7th Consecutive Day

Increase rate slowed from 0.29%P to 0.11%P... 10-year bond yields slightly decline
BOE includes inflation-linked bonds in purchase targets... bond purchases to end as scheduled on the 14th

Bank of England [Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] The Bank of England (BOE), the central bank of the United Kingdom, announced additional measures on the 11th (local time) to prevent turmoil in the financial markets, but the yield on 30-year government bonds continued to rise. However, the rate of increase slowed compared to the previous day, and the yield on 10-year government bonds slightly declined.

According to MarketWatch, the yield on 30-year UK government bonds rose by 0.11 percentage points from the previous trading day to 4.79%. It increased for the seventh consecutive trading day, approaching 4.99% on September 27, just before the BOE announced its bond purchase plan, but the increase was slower than the 0.29 percentage point rise the day before. The yield on 10-year government bonds, which had surged by 0.23 percentage points alongside the 30-year bonds the previous day, fell by 0.03 percentage points to 4.44%.

On the same day, the BOE announced that it would include inflation-linked government bonds in its long-term bond purchase targets. Despite announcing measures to stabilize the financial market the day before, the long-term bond yields rose sharply, prompting the BOE to issue a second set of measures in two days. The day before, the BOE promised to double the daily bond purchase limit from 5 billion pounds to 10 billion pounds and to operate a new short-term funding scheme until November 10.

The Wall Street Journal (WSJ), citing Tradeweb data, reported that the yield on 30-year UK inflation-linked government bonds, which closed at 0.851% last week, rose to over 1.5% this week. WSJ added that after the BOE announced its plan to purchase inflation-linked bonds, the yields did not rise further but remained at a high level.

Andrew Bailey, Governor of the Bank of England (BOE)
Photo by Reuters Yonhap News

On the same day, pension funds and life insurance-related organizations urged the BOE to extend the bond purchase period until the end of this month.

However, BOE Governor Andrew Bailey stated that the bond purchases would end as planned on the 14th, adding that there are only three days left to buy bonds.

After the government announced a large-scale tax cut plan worth 45 billion pounds on September 23, the pound sterling fell to an all-time low and long-term bond yields surged, causing extreme turmoil in the financial markets. In response, the BOE announced a bond purchase plan worth 65 billion pounds on September 28 as part of market stabilization measures. At that time, the BOE announced it would purchase bonds until October 14, and despite doubling the daily bond purchase limit the day before, it maintained the bond purchase end date as the 14th.

The International Monetary Fund (IMF) issued another warning, stating that it would be difficult to control inflation due to the government's tax cut policy.

In its World Economic Outlook released on the same day, the IMF warned that the UK's tax cut plan would raise growth rates somewhat in the short term but would make inflation control more difficult. The IMF forecasted that the UK's economic growth rate would plunge to 0.3% next year from the April forecast of 1.2%. It also expected inflation to reach 9% next year.

The IMF unusually criticized the UK government after the financial markets fluctuated following the tax cut announcement last month and urged the government to reconsider the tax cut plan.

In effect, the IMF reiterated its warning that the UK government must revise the tax cut plan.

The UK think tank Institute for Fiscal Studies (IFS) warned on the same day that the government would have to painfully cut spending by up to 60 billion pounds. John Gieve, former Deputy Governor for Financial Stability at the BOE, pointed out in a BBC Radio interview that the problem is that the market does not believe the government can reduce spending sufficiently.

Chancellor of the Exchequer Kwasi Kwarteng appeared before the House of Commons on the same day and said, "We are steadily focusing on economic growth and improving the living standards of everyone." In response, Rachel Reeves, Shadow Chancellor of the Exchequer from the main opposition Labour Party, criticized, "This is a Conservative Party crisis created at Downing Street, but workers are paying the price."

This content was produced with the assistance of AI translation services.