As pound slips, Bank of England steps in to buy bonds and restore parity

As the pound continues to hit an all-time low against dollar, the Bank of England (BOE) on Wednesday announced that it will be temporarily buying bonds to calm the jangling nerves of the market.

"The Bank will carry out temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions," said the BOE in a statement.

Reportedly, the auction for the selling of bonds will take place from today till October 14 and will be halted when "risks to market functioning are judged to have subsided."

"The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury," it further added.

As reported by WION, the tax cuts announced in the mini-budget by British finance minister Kwasi Kwarteng have resulted in the pound slipping to its lowest markof $1.0327 against the dollar, for the first time since 1971.

The announcements made by Kwarteng included a number of tax cuts along with reliefs for homeowners and people looking for loans. However, Bloomberg reported that the UK current account deficit has also widened to a record level which has affected the pound negatively.

While the pound takes a beating, the BOE, in the aftermath of Queen Elizabeth II's demise has also announced a partial 'demonetisation'. Reportedly, by September 30, about £6 billion in old £50 notes and more than £5 billion in old £20 notes will no longer be recognised by UK businesses.

The paper notes will be replaced by polymer £20 and £50 notes which have been in circulation for more than two years (since February 2020).

Moreover, with the winter fast approaching and the UK, akin to the rest of Europe scrambling to fill its energy reserves, the price of utilities is expected to skyrocket, which could trigger inflation to record levels, stressing the pound further.

(With inputs from agencies)

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