12 October 2022 Bank of England to Extend Intervention

Bank of England to Extend Intervention​

What do you need to know this week?

The Bank of England has announced it will double down on certain aspects of its gilt repurchasing programme which it began on 28 September following the market’s reaction to the government’s new fiscal strategy.

In the final week of the programme’s existence, the Bank will:

• increase the potential size of the daily auctions it holds when buying gilts;
• launch a special loan programme for banks servicing pensions with liability-driven investment (LDI) products; and
• offer a permanent loan facility to certain banks with a high degree of exposure to LDI pension funds.

While the BoE has stated that it intends to end its operations as planned by 14 October, as of today, there are private rumours the BoE may be prepared to extend the programme for longer.

Why is this important for your interviews?

In keeping with the past couple weeks of coverage over the government’s “mini-budget”, the Bank of England’s most recent announcement is obviously relevant. The move signifies that the BoE takes seriously its role in assuaging the market, even if the tools it uses to achieve this runs counter to its wider objective of reining in inflation.

The BoE’s actions also demonstrate a salient fact about the Bank of England: it exercises a degree of independence from the government, which the market looks to, given the somewhat pacifying effect the Bank of England’s immediate interventions had on the market.

From a political perspective, we might ask how this might influence Liz Truss’ stated intention to reign in the Bank of England’s independence following what she alleged during her campaign as reluctance to embrace the government’s agenda.

Given the Bank of England’s significant role in stabilising the market, it is feasible that any attempts by the government to compromise the Bank’s independence may induce a similar response as we saw following the “mini-budget”. In turn, we may infer that Liz Truss may be less reluctant to embark on the reform strategies she championed during her campaign for the premiership.