THE Bank of England’s emergency intervention in financial markets to buy UK Government bonds underlines the scale of the mayhem unleashed by Kwasi Kwarteng’s mini-Budget and should surely be an embarrassment to the ruling Conservatives.

While Budgets and other fiscal policy statements have in the past proved politically controversial, in terms of winners and losers, certainly in recent decades the idea that they would trigger the need for emergency intervention by the central bank to calm UK financial markets seemed inconceivable.

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However, amid the turmoil following Friday’s mini-Budget, such intervention had suddenly looked like a distinct possibility, given the huge knock-on effects of the financial market turbulence, including the impact on the cost and availability of mortgages and on pension funds.

The Bank of England cited “dysfunction” in the gilt market, notably affecting long-dated UK Government bonds, as it unveiled its intervention yesterday. And it warned that, if this were to continue to worsen, there would be a “material risk to UK financial stability”.

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It noted this “would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy”.

We have in recent days seen lenders withdraw a raft of mortgage products as forward interest rates have surged.

And financial markets have moved to price in a rise in UK base rates, currently 2.25 per cent, to 6% by next year.

Financial market players yesterday highlighted major pressure on some pension funds arising from the plunge in gilt prices in the wake of the Tory “Growth Plan”. This “plan” includes a slew of tax cuts and the reversal of a planned rise in corporation tax which will in aggregate cost tens of billions of pounds a year.

Sandra Holdsworth, at Edinburgh-based Aegon Asset Management, declared the Bank of England had stepped in “to stop the gilt market from entering a vicious spiral”.

She noted that selling in the gilt market had been intense in recent days, explaining: “This has led to a huge demand for cash to support derivative structures popular amongst pension funds. Cash has been raised by selling more gilts, the prices fall and the circle continues.”

Donald Phillips, at fund management group Liontrust, described the Bank of England’s intervention as a “welcome piece of news in the short term, preventing for now a run on the gilt market”.

However, the underlying problem remains, in terms of huge worries in financial markets that the UK Government’s fiscal policies are not sustainable.

Mr Phillips expressed hopes that the Bank intervention “is buying the UK Government time to address the flaws in their profligate fiscal policies, affording them some room to bring to Parliament a plan based on the reality of the economy we have”.

Mr Kwarteng has said the Government will publish a “medium-term fiscal plan”, but not until November 23.

And, with the Government having decided the independent Office for Budget Responsibility should not publish economic and fiscal forecasts last Friday incorporating the effects of the mini-Budget measures, publication of the OBR projections is also not due until then.

The crisis, however, surely requires a greater degree of urgency from the Government.