The central bank's emergency program draws to a close Friday, but traders remain on edge as volatility in the U.K. gilt market looks set to continue.
Luke Bartholomew, senior economist at Abrdn, noted the level of market uncertainty around the government's ability to deliver a credible fiscal package at the end of the month, suggesting that volatility may persist and force further interventions from the Bank.
"Clearly the Bank is trying to dispel concerns around fiscal dominance, where it would be forced into more permanent operations to support gilt yields in response to the volatility and re-pricing caused by the government's fiscal policy," Bartholomew said in a note Wednesday. "While the Bank certainly needs to re-assert its independence and the primacy of its price stability mandate, it is far from clear how credible such statements are given the degree of vulnerability exposed in the gilt market."The temporary purchase program was only one of three components of the Bank's support package., told CNBC Thursday that the Bank of England remained focused on the temporary purchases serving as a "backstop.
"This is also exemplified by the different valuation approach they are employing at the auctions, when compared to the approach of the historical monetary policy based QE purchases," he said, pointing to the relatively low values of daily purchases made by the Bank up until Wednesday. "It is also reflected in the fact that they have only purchased a fraction of the total initial maximum envelope, although this is also a direct function of theLupoli suggested the temporary purchases were an "incremental instrument in the BoE's financial oversight toolbox," and may be deployed again in future should any "analogous market dysfunction" occur which the Bank deems a threat to financial stability.
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