UK borrowing costs rise as Bank of England warns of pension ‘contagion’

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The Bank of England has announced it will increase the scope of its £65bn intervention in gilt markets as part of an “orderly end” to the program before it closes on Friday.

In a statement this morning, Threadneedle Street said the rate at which it buys long-term government bonds will rise from £5bn a day to £10bn a day.

His decision comes after eight auctions so far in which the Bank has offered to buy £40bn worth of bonds but has only managed to buy £5bn.

The Bank bought the gilts using newly minted money in a process known as quantitative easing.

On Monday, Threadneedle Street also announced that it would also launch a “temporary extended collateral repo facility”, aimed at providing liquidity to banks whose customers are struggling with sudden cash calls. This will continue beyond Friday.

The Bank first announced the bond-buying program on September 28 in a bid to calm market “dysfunction” following Chancellor Kwasi Kwarteng’s mini-budget, which spooked investors and sent pension funds and gilt markets in a sell-off doom-lop.

The crisis has focused on so-called passive investment funds (LDIs), which pension schemes use to hedge against adverse movements in inflation and help match their liabilities with their assets.

5 things to start your day

1) Companies risk disaster from pension overhaul Sweeping new rules designed to prevent a repeat of the BHS pensions scandal will cost businesses £30billion and push hundreds of businesses to the brink of collapse, the government has warned.

2) Rees-Mogg lays out plan to keep hospitals running if gas runs out The business secretary has told gas suppliers to maintain flows for as long as possible to users where cuts would put lives or their well-being at risk, likely including hospitals and nursing homes.

3) 50 pubs close every month because of the inflation crisis New figures show there are now around 39,800 pubs in England and Wales, with the number of closures accelerating in the summer.

4) Tech chiefs at war over future of funding that helped forge Silicon Roundabout tech nation is set to lose a key government grant, the Digital Growth Fund, which accounts for the majority of its income and is worth £12m over the next two years.

5) Indian trade talks in data deadlock Whitehall sources have said International Trade Secretary Kemi Badenoch could strike several ‘one-shot’ trade deals with India’s protectionist government, fearing that any deal reached before the Diwali deadline could prove ‘thin’.

What happened overnight

Stocks fell in Asia on Monday after a surprise drop in unemployment in the United States quashed any hint of a pivot on policy tightening ahead of an inflation reading that should see core prices rise again .

Geopolitical tensions added to the uncertainty as markets waited to see how the Kremlin might react to the explosion that hit Russia’s only bridge to Crimea.

The holidays in Japan and South Korea reduced trading in Asia, while the Treasury market is also closed on Monday.

S&P 500 futures led the early action falling 0.4%, while Nasdaq futures fell 0.5% ahead of the start of third-quarter results later this week.

MSCI’s broadest index of Asia-Pacific stocks outside Japan lost 1.4% Nikkei futures traded at 26,575 from Friday’s cash close of 27,116.

Chinese blue chips fell 0.9pc after a survey showed the first contraction in services activity in four months.

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