UK Economy In Shambles As Central Bank Tries To Stop A Full-Blown Financial Crisis

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Following sweeping tax cuts Friday that led to collapsing prices for British assets, the Bank of England (BOE) announced plans Wednesday to purchase up to £65 billion ($70.9 billion) in government-backed bonds in a bid to stabilize the market.

The BOE had intended to begin selling government-backed bonds, known as “gilts,” next week, but suspended this plan as a result of recent instability in the British bond market, the BOE said in a press release. In order to stabilize the market, the bank intends to engage in a “temporary and targeted” series of gilt purchases, buying up to £5 billion ($5.45 billion) in gilts per business day through Oct. 14, according to a BOE market notice.

“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability,” said the BOE in its press release. “The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to effect this outcome.”

The largest tax cuts in 50 years are part of a strategy from the new U.K. government, headed by Prime Minister Liz Truss, to spur growth in combination with increased government spending, CNN reported Spet. 23. The cuts drop the highest income tax rate from 45% to 40% and are projected to cut about £45 billion ($49 billion) in anticipated revenue over five years.

“We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures,” an International Monetary Fund spokesperson said Tuesday in a rare rebuke of a Western economy. “However, given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”

The British Pound sterling has fallen to historic lows against the U.S. dollar, at $1.035 on Monday, surpassing the record of $1.04 set in 1985, according to Quartz. The value of the pound fluctuated significantly Wednesday but was up near $1.09 at time of writing, according to Yahoo Finance. (RELATED: British Pound Hits Lowest Level Against US Dollar In 37 Years)

The BOE is expected to raise interest rates up from their current level of 2.25% to about 6% by next spring in an effort to combat the inflationary pressure of the British spending spree, CNN reported Wednesday. Inflation in Britain has been running at the hottest levels in nearly 40 years, hovering near 10% for the past two months, according to the U.K.’s Office for National Statistics.

The Bank of England referred the Daily Caller News Foundation to the press release and market notice referenced above.

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