What’s causing the surge in borrowing costs?

When Kwasi Kwarteng stood up to deliver his mini-Budget last month, the assumption by the government was that the markets would jump for joy over its growth strategy. Less than three weeks later, the Bank of England is staging its third intervention to keep the UK’s bond market afloat, warning this morning of ‘material risk’ to the UK’s financial stability if markets don’t calm down soon. 

After yesterday’s update – that the Bank would double its purchasing limit of long-term gilts from £5 billion per day to £10 billion as well as extending its gilt-buying scheme past the end of the week to allow banks to protect pension funds – Threadneedle Street this morning announced it would include index-linked government bonds in its purchases for the next few days, until the scheme formally comes to an end on Friday.

Indeed, there was an auction of index-linked government bonds this morning. The good news is that this auction was, broadly speaking, a success, with sales totalling £900 million.