Bank of England intervention prevented a destructive 'spiral' after the mini-budget

The Bank of England said its intervention in the gilt market last month had prevented a "self-sustaining spiral" following Kwasi Kwarteng's mini-budget, which could have wiped out the value of a large number of funds held by pension companies.

In a letter to the House of Commons Treasury Committee outlining the reasoning behind the September 28 dramatic decision, the Bank's Deputy Governor for Financial Stability, Sir Jon Cunliffe, said that soaring gilt prices could have triggered “widespread financial instability”.

If the Bank had not intervened, a “large number” of liability-driven investment funds (LDIs) would have ended up with a "negative net asset value", reducing their value to "zero" for the repo providers who hold significant shares in it.