UK markets roiled after central bank rules out extending help

LONDON (AP) — Britain's economy faced new shocks Wednesday after the Bank of England ruled out extending an emergency debt-buying plan – and the Conservative government appeared to blame the independent central bank for the United Kingdom's economic turmoil.

Prime Minister Liz Truss came under more pressure from her Conservative Party to abandon the tax-cutting economic package that sparked the market instability.

Tory lawmaker Mel Stride, who heads the House of Commons Treasury Committee, said only a “clear change in tack” from the government would reassure the markets.

The pound currency sank against the dollar again and the cost of government borrowing rose after Bank of England Governor Andrew Bailey confirmed that a program to buy government bonds, introduced last month to stabilise financial markets, will end Friday as scheduled.

“My message to the (pension) funds involved – you've got three days left now. You have got to get this done,” Bailey said late Tuesday in Washington, where he is attending the annual meeting of the Institute of International Finance.

Analysts say pension funds had lobbied England's central bank to extend the program by two weeks.

The pound fell by almost 1% to just below $1.10 after Bailey spoke, before rallying slightly after the Financial Times reported that the bank was, after all, prepared to keep buying bonds beyond the Friday deadline.

The bank quashed that report, saying its “temporary and targeted purchases” of government bonds “will end on October 14.”

The UK 30-year yield on British government bonds, known as gilts, passed 5% on Wednesday morning amid growing unease among traders. Gilt yields, which rise as prices fall, are back close to the levels which led to the bank's intervention last month.

The central bank took emergency action after the British government on Sept. 23 announced plans for 45 billion pounds ($50 billion) in tax cuts without saying how it would pay for them. The announcement spooked financial markets and sent the pound plunging to a record low of $1.03 against the dollar.

The Bank of England intervened to prop up the bond market and stop a wider economic crisis that particularly threatened pension funds.

On Tuesday the bank broadened its intervention, saying it will now buy inflation-linked securities — which offer protection from inflation — as well as conventional government bonds as it seeks to “restore orderly conditions” in the market.

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