The Bank of England has confirmed its emergency bond-buying programme will end on Friday as planned after reports suggested it might extend the support for pension funds.
On Wednesday morning, it said all temporary and targeted purchases of UK government bonds, known as gilts, will end.
This has been the position throughout and has been “made absolutely clear in contact with the banks at senior levels”, the Bank said in a statement.
The emergency 13-day bond buying programme was started to avoid “dysfunction” in the pension market spreading UK households and businesses.
It is aimed at tackling the consequences of rising interest rates on government bonds, which increased the cost of holding the bonds and resulted in pension funds facing a liquidity crunch.
There had been earlier suggestions the Bank of England could backtrack, however, and extend the bond-buying beyond Friday’s cut-off.
The Financial Times had reported the Bank has been privately telling those working in pension funds that it could extend its bond-buying programme beyond Friday.
This came despite the governor, Andrew Bailey, firmly stating pension funds had “three days left… to get this done” at an event in Washington on Tuesday evening.
In its statement on Wednesday, the Bank reaffirmed it would continue to support the pension markets in other ways beyond Friday.
Further warnings on the economic health of businesses were issued: “For businesses, higher costs, lower household demand and rising interest rates will reduce earnings. Some may find it harder to repay debts.”
Households may be less impacted by rising interest rates due to being on fixed-term repayment plans and having less debt, the Bank said. Accordingly there is a reduced risk of defaulting on repayments.
“People have less debt (relative to their incomes) and the share of high loan-to-value mortgages is much lower than before the global financial crisis. This reduces the risk of them defaulting on debt and banks are now required to be flexible in their response,” the report said.
The banks are in a better position than the financial crash too and are able to help households should they fall into financial difficulty, the Bank concluded.
“The UK banking sector is substantially more resilient than before the global financial crisis, with significantly higher levels of capital and liquidity. They can continue to support households and businesses even if economic conditions get worse.”
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