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The Bank of England’s decision to postpone the sale of long-dated bonds to after June following market volatility was a “precaution”, according to deputy governor Sarah Breeden.
President Donald Trump’s tariffs sent markets around the world into a state of panic as 30-year gilt yields surged to its highest level since 1998, pushing up borrowing costs for the government.
The Bank said it would instead sell shorter maturity gilts next week due to “market volatility” and added it would continue to reassess the development of its assets sales in its monetary operation known as ‘quantitative tightening’ (QT).
The Bank also reiterated that interest rates remained the main monetary policy tool to be used as Breeden said the decision to delay the sale of longer maturity gilts was not taken by the Monetary Policy Committee (MPC).
“Given the kinds of volatility that we’ve been talking about and seeing in global markets, my colleagues in the markets area judge that it was wise as a precaution to switch the planned order of our sales so that we have a short dated auction now and a longer dated auction later.
The Bank’s QE process is set to end in September, around three years after it was first introduced. It complemented an interest rate-raising cycle after Russia’s war in Ukraine pushed up global energy prices.
Breeden pointed out that there were few sales to occur over the year and that there was only one long-dated gilt auction needed between now and September.
Yields on 30-year gilts climbed around 5.6 per cent on Wednesday, putting an extra strain on public finances.
Chancellor Rachel Reeves said she is pushing for a trade deal with the US as the president gave the UK and most other countries a 90-day reprieve from tariffs.
Her ability to secure a deal are likely bear heavily on whether her £9.9bn headroom can stay intact ahead of the Autumn Budget as low growth prospects risk wiping it out.
Separately, the Financial Policy Committee (FPC) warned that “adverse events” put pressure on hedge funds though markets had been able to cope so far with fluctuations in prices.
