The Bank of England struggles to calm the crisis in the bond market

Sterling was down 0.7% at $1,065, after falling to a session low of $1.0618.

The Bank of England said it is sticking to its target of reducing its 838 billion pounds ($892 billion) of gilt holdings by 80 billion pounds over the next year, but that will postpone the start of sales – which were due to start next week – due to market conditions.

Earlier, the International Monetary Fund (IMF) and rating agency Moody’s had increased pressure on Britain to reverse its new strategy, laid out by new Finance Minister Kwasi Kwarteng on Friday, in a move that , according to him, would boost economic growth.

The rare intervention in a G7 country by the IMF, the world’s lender of last resort, underscored the seriousness of the situation facing Britain, with the value of the pound and British bonds plummeting since Friday.

The Bank of England had said on Monday it would not hesitate to raise interest rates and was watching markets “very closely”. Its chief economist, Huw Pill, said on Tuesday that the central bank was likely to carry out a “significant” rate hike at its next meeting in November.

Despite these comments, the market was still in full swing.

UK 30-year government bond yields topped 5% for the first time since 2002 on Wednesday as, following the BoE statement, 30-year yields fell more than 50 basis points on the day.

The latest crisis to hit the British state has been triggered by Kwarteng’s plans to implement deep tax cuts and deregulation to lift the economy out of a long period of stagnation, seen as a return to Thatcherite and Reaganist doctrines of from the 1980s.

With the cost of British borrowing rising, mortgage lenders withdrew hundreds of products and, according to anecdotal reports, people were trying to complete or change mortgage deals.

This would come as quite a shock in a country where rising house prices have for years created a sense of general wealth, and where home buyers have grown accustomed to more than a decade of rock-bottom interest rates. .

The IMF said the proposals, which took the pound to a record low of $1.0327 on Monday, would add to a credibility crisis, after the government cut taxes and increased borrowing just as the Bank of England raised rates. interest rates to deal with rising inflation.

“Given the elevated inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work against monetary policy,” an IMF spokesperson said. .

Jim Reid, a research strategist at Deutsche Bank, described the “reprimand” as “pretty scathing”.