When long-dated UK government bonds fell sharply following the consistent criticism of the new economic measures laid out by the UK government, it forced the Bank of England to intervene to prevent an “unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy”.
On September 28, the Bank announced it would buy UK government bonds (also known as gilts) with maturities of 20 years and upwards on “whatever scale is necessary” over a two-week period. This involves “creating” potentially £65 billion of new money using quantitative easing (QE), while the bank has also delayed until the end of October a separate plan to begin selling gilts to reduce £838 billion of existing QE money brought into existence since 2009.
The Bank did not explain why the fall in long-dated gilt prices “has become more significant in the past day”, but experts quickly identified the UK pensions industry as the leading cause. Specifically, the wider UK economy is at risk because most UK retirement savings are managed using an approach known as liability-driven investing (LDI).
