Bank Of England Buys UK Bonds To Calm Market Jitters

The Bank of England stepped in on Wednesday to buy UK government bonds to shore up market confidence after Britain's heavily-criticised budget aimed at fighting inflation.

"The purpose of these purchases will be to restore orderly market conditions," a BoE statement said regarding its temporary buying of long-dated bonds.

The announcement came as government borrowing costs soar after Friday's costly budget that sparked fears over the public finances.

The bank added that there was a "material risk to UK financial stability" should current market conditions continue.

"This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy," it said.

But the pound tumbled against the dollar despite the Bank of England snapping up UK government bonds to try and bring calm to markets. Sterling dropped 1.5 percent to US$1.0570 shortly after the BoE intervention.

As well as soaring UK government bond yields, the British pound on Monday hit a record low at US$1.0350, perilously close to parity.

The bank "stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses," it added on Wednesday.

Analysts have warned that the BoE would need to hike interest rates even more aggressively in the coming months to try and bring down decades-high inflation.

The bank last week had ramped up its key interest rate by a half-point to 2.25 percent. (AFP)