Bank of England rattles market by giving ‘conflicted and confused’ guidance over emergency bailout

The Bank of England was accused of giving ‘conflicted and confused’ guidance yesterday as it appeared to flip-flop over when it would end its emergency bailout of the bond market.

Bank officials were forced to step in last month to stabilise government debt markets after Chancellor Kwasi Kwarteng’s mini-Budget sent investors into a tailspin.

The scheme, worth up to £65billion, was due to end tomorrow.

But after calls from pension funds – which have been caught up in the chaos – to extend the bailout, it appeared that the Bank was re-thinking its plans.

A handful of major lenders were told by the Bank that officials would be open to prolonging the bond-buying programme, the Financial Times reported yesterday morning.

The report – which temporarily boosted the pound and gilt markets – came hours after Bank governor Andrew Bailey said the exact opposite.

Speaking at the annual meeting of the International Monetary Fund in Washington DC on Tuesday night, he said the rescue scheme would definitely end tomorrow.

In an embarrassment for the Bank, a spokesman reiterated Mr Bailey’s words yesterday.

The spokesman said: ‘As the Bank has made clear from the outset, its temporary and targeted purchases of gilts will end on October 14.

‘The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels.’

The Bank was lambasted by City commentators for its mixed messaging.

Former pensions minister Sir Steve Webb said the Bank was ‘partly responsible for the mess’ – and said the decision to terminate its bond buying programme tomorrow was a mistake.

He added: ‘Whilst you wouldn’t sack the governor of the Bank in the middle of a crisis, I certainly wouldn’t renew his contract.’

The turmoil in government debt markets began on September 23, when Mr Kwarteng unveiled a series of tax cuts without revealing how they would be funded.

Investors, alarmed by the prospect of more borrowing, began dumping government bonds, known as ‘gilts’.

But Jacob Rees-Mogg said that the chaos in the financial markets had ‘much more’ to do with the Bank’s policy on interest rates than the Government’s emergency Budget.

Yesterday, the Business Secretary dismissed suggestions that investors had taken fright and said the main cause of market disquiet and Sterling’s slide against the dollar was the failure of the Bank to raise interest rates in line with the US Federal Reserve.

Mr Rees-Mogg rounded on BBC presenter Mishal Husain after she suggested the market chaos was a direct result of the Government’s decision to press ahead with £45billion in unfunded tax cuts.

He told Radio 4’s Today programme: ‘What has caused the effect in pension funds… is not necessarily the mini-Budget.

‘It could just as easily be the fact that the day before the Bank of England did not raise interest rates as much as the [US] Federal Reserve did. Jumping to conclusions about causality is not meeting the BBC’s requirement for impartiality.’

Deutsche Bank’s chief UK economist Sanjay Raja told the Commons Treasury Committee that the mini-Budget was the ‘straw that broke the camel’s back’.

Downing Street said Mr Rees-Mogg was right to point out the global nature of the disruption to financial markets.

But the Prime Minister’s official spokesman said Liz Truss accepted that the presentation of the emergency Budget could have been handled better.

He told reporters: ‘The PM has acknowledged that because we, rightly, moved at speed we could have laid the ground better.’