Britain’s financial crisis: Why the central bank acted

Slump in bond prices sparked by tax cuts threatens to hurt pension industry, raise recession risks

LONDON Britain’s central bank bought bonds again on Wednesday in an emergency move to reduce the chaos in the financial markets that was triggered last week by the tax and spending plans of new Prime Minister Liz Truss.

The slump in government bond prices and the subsequent surge in yields has threatened to wreak havoc in the country’s pension industry, hurt the housing market and increase the recession risks for the broader economy. Here is why the Bank of England BOE) acted and its impact:

Q Why is Britain facing another financial crisis? 

A Investors were already worried about the huge cost of the tax cuts and energy subsidies promised by Ms Truss even before Finance Minister Kwasi Kwarteng announced more cuts to taxes last Friday. Rather than heed Mr Kwarteng’s promises of stronger economic growth, investors took fright at the prospect of higher inflation caused by the tax cuts, which they saw as forcing the BOE to speed up its interest rate increases.