Bank of England Expands Push to Stabilize Financial Markets

As the government plans to reduce taxes, the Bank of England on Tuesday added to its emergency effort to quell upheaval in financial markets unleashed by the government's move, saying that fluctuations in the bond market pose a "material risk" to Britain's fiscal stability.

Earlier this week, the U.K. Bank of England announced it would start buying inflation-linked securities - which protect against inflation - and conventional government bonds to "restore orderly conditions" in the market. There will be a total of 10 billion pounds ($11 billion) per day in purchases of both types of bonds, and the program will end Friday as originally planned as the money will be split evenly between both types of bonds, the bank said in a statement.

According to analysts, pension funds lobbied the Bank of England to extend the program by two weeks. Still, the central bank governor refused to do so during a speech at the annual meeting of the Institute of International Finance in Washington last week. According to him, portfolio managers have three days to rebalance their positions.

Earlier this week, the bank increased the scope of its program after yields on government bonds spiked again, returning to the levels they reached immediately after the government announced last month that it planned to bring in wide-ranging tax cuts without indicating how it would pay for them. As a result, markets were spooked by the possibility of a surge in government borrowing, which sent the pound plunging to a record low against the dollar and threatened pension funds with liquidation.