The Bank of England is intervening to stabilise the UK’s economy on “whatever scale is necessary” after an unprecedented withdrawal of mortgages overnight.
The Treasury said the Government will continue to “work closely” with the central bank after it announced it will launch a temporary UK government bond-buying programme as an emergency move to stave off a “material risk to UK financial stability”.
First Minister Nicola Sturgeon said the Commons should be recalled to address the economic turmoil.
It comes after a sell-off and surge in bond yields and banks and lenders across the UK removing the availability of mortgage products.
In a statement, the Bank of England said: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.
“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.”
The Bank will carry out temporary purchases of long-dated UK government bonds from Wednesday, September 28.
“The purchases will be carried out on whatever scale is necessary to effect this outcome,” the Bank said.
It comes after sterling slumped to its lowest level against the dollar since 1971 on Monday, and a host of major banks and lenders pulled mortgage products.
Halifax, a trading division of Bank of Scotland and a wholly-owned subsidiary of Lloyds Banking Group, removed all its mortgages that come with a fee.
Virgin Money, Skipton Building Society and Santander also made offers unavailable, while Nationwide Building Society announced it was raising the cost of its fixed rate mortgages.
Nicola Sturgeon said the UK was in the “grip of (a) rapidly deteriorating economic crisis” and the emergency intervention by the Bank of England to “reduce damage” from the Government’s policies was “extraordinary”.
In a message on Twitter she said “where even is PM” Liz Truss as she called for Parliament’s conference recess to be curtailed.
Sturgeon added that “as at least an initial symbol of sense” the plan to abolish the additional rate of income tax for top earners should be “dumped”.
A Treasury spokesperson said: “The Bank of England, in line with its financial stability objective, carefully monitors financial markets and any potential risk to the flow of credit to the real economy, and subsequent effects on UK households and businesses.
“Global financial markets have seen significant volatility in recent days. The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK government bonds from today in order to restore orderly market conditions.
“These purchases will be strictly time-limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury.
“The Chancellor is committed to the Bank of England’s independence. The Government will continue to work closely with the Bank in support of its financial stability and inflation objectives.”