LONDON: The Bank of England stepped in on Wednesday to shore up market confidence after the International Monetary Fund criticised Britain`s inflation-fighting budget.
In a surprise move, the BoE announced it was temporarily buying up longdated UK government bonds `to restore orderly market conditions`.
The pound promptly slumped 1.7 per cent to $1.0552 before clawing back ground.
There was respite elsewhere, with the UK government`s 30-year bond yield retreating to 4.44pc, havinghit a 1998 peak at 5.14pc.
The BoE intervention followed criticism on Tuesday from the IMF, which argued that Britain`s budget could increase inequality and worsen inflation.
Credit ratings agency Moody`s also waded in overnight with a warning about soaring debt.
`So, the Bank of England finally intervenes after coming under so much pressure to act,` said City Index analyst Fawad Razagzada.
`The BoE`s intervention is an attempt to soothe investor nerves after they were spooked by last week`s mini-budget.` Finance min-ister Kwasi Kwarteng`s big tax cuts and energy price freeze, aimed at boosting the UK`s recession-threatened economy, appeared to have had the opposite ef fect as traders warn of ballooning debt to pay for the incentives.
Following last Friday`s budget, UK bond yields soared and the pound hit a record low at $1.0350, perilously close to parity.
In a highly unusual intervention, the IMF late Tuesday said it was `closely monitoring` developments and urged the government in London led by new Prime Minister Liz Truss tochange tack.
The Fund added: `We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.
`However, given elevated inflation pressures in many countries... we do not recommend large and untargeted fiscal packages at this juncture.` The IMF said the `UK measures will likely increase inequality` and stressed the importance of fiscal policy not working `at cross purposes to monetary policy`.-AFP
