We can expect the Bank of England to be busy for a while

The scale of the panic in what is more normally one of the City’s calmer backwaters is actually quite startling, says James Moore

The Bank of England (PA)

So, the Bank of England is moving ahead with selling £80bn of UK government bonds from 1 November, a day later than originally announced, to avoid a clash with the government setting out its debt-cutting plan.

With inflation booming, the Bank’s planned sales serve as a secondary means of cooling prices, alongside raising interest rates. It currently has £838bn of government IOUs on its books, dating from 2009. The portfolio was built up during the extended spell of asset purchases or “quantitative easing”. This was designed to stimulate an economy that had fallen into a trough in the aftermath of the financial crisis and was struggling to find a way out of it

The former chancellor, Kwasi Kwarteng’s “fiscal statement” required a response, with the Bank forced into the position of promising to buy more bonds to arrest a meltdown. Yesterday, the Bank had dismissed a report in the Financial Times that it was set to delay the sale of any of its bonds for a month.

The scale of the panic in the gilt markets, normally one of the City’s calmer backwaters, is actually quite startling. The Bank’s deputy governor Jon Cunliffe, in a letter to the Treasury Committee, said that the five biggest daily moves in the price of Britain’s 30-year inflation-linked gilt had all been since 23 September. The data goes back to 2000.

The Bank desperately wants to see the re-emergence of something resembling normal market conditions, which is why it doesn’t want to hold off on its sales if it can help it. And it shouldn’t be in the position of hand-holding.

Trouble is, those conditions do not exist. The situation remains highly volatile. The word “unprecedented” is still being bandied around about the prevailing market conditions. Dealers might be inclined to express it a shade more robustly than that. It isn’t only in Threadneedle Street where they’re craving steadier weather.

The situation remains under review, with the gilt market still subject to the sort of wild swings more commonly found among cryptocurrencies.

I don’t expect this to be the last intervention from the Bank of England.