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Pound Falls As UK Bank Chief Declines Help
- By The Financial District
- Oct 12, 2022
- 2 min read
The pound sank against the dollar early Wednesday, Oct. 12, 2022, after the Bank of England confirmed it won’t extend an emergency debt-buying plan introduced last month to stabilize financial markets.
Photo Insert: The UK pound is getting pounded.
Bank Governor Andrew Bailey said the program will end on Friday as scheduled, Jill Lawless and Danica Kirka reported for the Associated Press (AP).
"My message to the (pension) funds involved – you’ve got three days left now. You have got to get this done,” Bailey said late Tuesday in Washington. “Part of the essence of a financial stability intervention is that it is clearly temporary."
The pound fell by almost 1% to just below $1.10 after Bailey spoke, before rallying slightly after the Financial Times reported that the bank was, after all, prepared to keep buying bonds beyond the Friday deadline. The bank quashed that report, saying its “temporary and targeted purchases” of government bonds “will end on October 14.”
“The governor confirmed this position yesterday and it has been made absolutely clear in contact with the banks at senior levels,” the bank said.
The central bank took emergency action after the British government on Sept. 23 announced plans for 45 billion pounds ($50 billion) in tax cuts without saying how it would pay for them. The announcement spooked financial markets and sent the pound plunging to a record low of $1.03 against the dollar.
The Bank of England intervened to prop up the bond market and stop a wider economic crisis that particularly threatened pension funds.
On Tuesday, the bank extended its intervention, saying it will now buy inflation-linked securities — which offer protection from inflation — as well as conventional government bonds as it seeks to “restore orderly conditions” in the market.
Analysts say pension funds lobbied the central bank to extend the program by two weeks, but Bailey stuck to the timeline in an appearance at the annual meeting of the Institute of International Finance in Washington.
The market turmoil has caused pain for many Britons — especially prospective homebuyers, who have seen mortgage rates soar on the increased prospect of a big rate hike from the central bank when it meets next month.
