The Bank of England’s dramatic intervention today was in response to a “run dynamic” emerging in the British pensions system which could have resulted in the collapse of a swathe of institutions within hours, Sky News understands.
Bank staff worked through the night on Tuesday and into Wednesday morning to prepare the unprecedented package, which will see it buying up a potentially limitless number of targeted government bonds.
It is the latest financial consequence of the market movements in recent days, which followed Kwasi Kwarteng’s fiscal statement on Friday.
Bank’s ‘nearly unthinkable’ intervention – economy latest
Since that statement, the pound has fallen sharply against most other major currencies and the value of UK government bonds has fallen, pushing up their implied interest rates or yields.
That whipsaw reaction has had dramatic consequences for the so-called “liability-driven investors” sector upon which defined benefits pension schemes are reliant.
According to those with knowledge of the programme, the Bank’s market operatives had begun to detect a “run dynamic” emerging from yesterday, with a number of pension funds suddenly not financially viable.
What’s happening with the UK economy?
Senior Tories ‘boycott’ Conservative Party conference as MPs fume over mini-budget fallout
Keir Starmer calls for recall of parliament over economic crisis
That in turn threatened the finances of many major banks, which would have faced severe troubles if those funds had collapsed.
According to those insiders, numerous funds were heading for collapse as soon as this afternoon.
Its dramatic action was designed to head off that outcome.
