Bank of England intervention prevented destructive ‘spiral’ after mini-Budget

Threat to pension funds could have triggered ‘widespread financial instability’

Bank officials worked through the night of 27 September, in coordination with the Treasury, to draw up a plan to prevent the spiral from developing (PA Wire)

The Bank of England has said that its intervention last month in the gilt market prevented a “self-reinforcing spiral” following Kwasi Kwarteng’s mini-Budget which could have wiped out the value of a large number of funds held by pension companies.

In a letter to the House of Commons Treasury Committee setting out the thinking behind the dramatic 28 September move, the Bank’s deputy governor for financial stability Sir Jon Cunliffe said that soaring gilt prices could have triggered “widespread financial instability”.

Had the Bank not intervened, a “large number” of liability-driven investment (LDI) funds would have been left with “negative net asset value”, reducing to “zero” their value to pension providers with significant stakes in them.