LONDON – The British pound sank Thursday by more than one percent against the dollar after the Bank of England intervened on the bond markets to head off a fresh financial catastrophe.
Sterling slid as low as $1.0763 in early morning London deals one day after the BoE snapped up long-dated government bonds, or gilts, to prevent a material risk to stability.
The British central bank vowed Wednesday to buy as many of the gilts as needed to calm markets, which have been plagued by concerns that last week’s UK budget will send debt soaring.
The BoE’s move “has certainly upped the level of concern over the potential negative economic and financial market fallout from the loss of confidence in UK’s public finances”, said MUFG analyst Lee Hardman.
The UK budget’s big tax cuts and energy price freeze, aimed at boosting the UK’s recession-threatened economy, had sent bond yields soaring and the pound collapsing to a record low of $1.0350 on Monday as traders fretted it would derail public finances.
The BoE move came after the International Monetary Fund criticised Britain’s recent budget, arguing it could increase inequality and worsen inflation. – AFP