The Bank of England has delayed gilt sales, which was to be the start of the reversal of Quantitative Easing, instead making temporary purchases of long-dated gilts from today "to restore orderly market conditions".
"The purchases will be carried out on whatever scale is necessary to effect this outcome," the bank added. It said they will be strictly time limited and last until 14 October.
The central bank said that it had been monitoring the significant repricing of gilts in recent days and was ready to "restore market functioning and reduce any risks from contagion" to UK households.
"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," it warned. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."
While the bank said that the plans to reduce its overall gilt holdings by £80bn were "unaffected and unchanged", it will delay the planned sales next week until 31 October.
The market reaction was instantaneous, as the 30-year gilt yield slumped to 4.4%, from well above 5% this morning.
The bank also reiterated in the statement that it "will not hesitate" to change interest rates by as much as needed to return to the 2% target.
