Why is the Bank of England buying bonds?

The BoE’s move follows the plummeting of the pound and British bond prices, which was triggered by the new UK government’s steep tax cuts. The cuts, announced as part of a mini-budget, stoked fears of higher inflation and, as a result, higher interest rates set by the BoE.

To cut taxes, a government has to issue more debt to fund its expenditure. Issuing this debt at a time when rates on bonds are rising makes the debt more expensive. The government’s surprise announcement pushed bond yields up even further, making the policy that much more disastrous.

“This looks like disarray—economic policy being driven by a drunk driver,” said Blanchflower, in an interview prior to the bond-buying announcement. “Global economic commentators basically think that British economic policy has lost its mind.”

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