BoE acts to prevent a pension fund collapse

How close did we come today to witnessing the collapse of numerous pension funds – especially those managing fund providing final salary pension schemes for savers?

Read: Bank emergency move driven by pension fund fears (BBC News)

Read: Bank of England in £65bn scramble to avert financial crisis (Guardian)

The Bank of England is taking emergency action to buy up to £5 billion of long-dated government securities (bonds) each day for the next thirteen days.

An intervention of £65 billion is designed to provide a buyer for bonds when few other agents seem willing to go near them.

By buying bonds, the market price rises which in turn lowers the yield on new and existing debt.

We will have to see in around a fortnight whether this intervention is sufficient – because the government’s economic credibility is largely in tatters because of the events of recent days.

Markets are powerful and they target countries perceived to be operating weak policy.

These are turbulent and momentous days in financial markets and the UK government is at the centre of the storm - a crisis - dare I say it - largely of their own making. The Bank of England's dramatic intervention to start a fourth round of quantitative easing (QE) with long-dated gilt purchases of up to £65 billion is a sign of just how serious is the lack of confidence in the gilts market about UK fiscal policy.

The policy decisions of recent days may start to unravel as the politics takes over.