“If this market dysfunction continues or worsens, there would be a significant risk to the financial stability of the UK,” the Bank of England said in a statement.
The bank said purchases aimed at “restoring orderly market conditions” would be “made on the scale necessary to achieve that outcome.” He also said he was time-limited to two weeks.
Truss, who is just three weeks into the job, is trying to change the UK economy with bold – some would say risky – moves that have spooked investors. Truss has made no secret of his views on the open market. During the leadership campaign to replace Boris Johnson as prime minister, she said she would be a tax cut from the start.
On Friday, she kept that promise with the government announcing huge tax cuts and a major increase in borrowing. Plans include scrapping the top tax rate of 45% for people earning over £150,000 and scrapping the cap on bankers’ bonuses.
Markets delivered their first verdict: On Monday, the pound fell to an all-time low against the US dollar, dropping to 1.03 at one point before recovering somewhat. Some economists have said the pound could fall to parity with the dollar.
On Wednesday morning, the pound fell back to 1.06 after hitting 1.08 on Tuesday.
“This, unlike other market fluctuations, is a self-inflicted wound,” Keir Starmer, leader of the opposition Labor Party, told the BBC on Wednesday morning. His party is up 17 percentage points, according to a recent YouGov poll. It is the party’s biggest lead against the Tories since 2001, when Labor leader Tony Blair won a landslide victory.
Truss will have to call a general election by January 2025 and is keen to implement his ideas on the economy.
On Tuesday, the International Monetary Fund issued a rare rebuke of the new UK government’s handling of its economic policy.
In an unusually blunt statement, he said he was “monitoring closely” the situation in the UK, adding that the government’s plans would “likely increase inequality”. Untargeted fiscal programs, he said, were not recommended in times of high inflation.
Truss and his Chancellor, Kwasi Kwarteng, defended their view of the economy.
“They’re willing to risk unpopularity because they think it will work in the long run,” said Tony Travers, professor of politics at the London School of Economics.
He noted that, unlike some of his Conservative Party predecessors, including Johnson and Theresa May, Truss’ views on the free market were quite straightforward. His government wants ‘to ensure that Britain is a low-tax, more flexible economy, in direct competition with highly paid workers and talent with the EU and around the world’.
“Whether it works or not, only time will tell,” he said, adding, “if it survives in the short term, time will tell sooner.”