The British central bank, the Bank of England, has intervened for the second time in a short time to guarantee financial stability. On Tuesday, the central bank decided to extend the emergency buyback of government bonds to prevent government debt rates from skyrocketing. It shows that the financial turmoil in the UK over the budget plans of Prime Minister Liz Truss’ government continues. The Bank of England announced in a press release that it is prepared to buy so-called inflation-linked bonds (government bonds that protect investors against inflation) in the coming days, in addition to the regular government bonds it has already bought. These inflation-linked bonds offer investors more interest as inflation increases. Over the past few days, yields on British government bonds have risen sharply, especially on inflation-linked bonds. Pension funds tried to get rid of them quickly, threatening the interest on them even further. “The prospect of a self-reinforcing emergency sale ( firesale ) poses a material risk to UK financial stability,” the Bank of England said. Thus a pattern repeats itself. Rising interest rates on British debt also caused acute problems for pension funds at the end of September, which saw the value of their bond investments plummet. On September 28, the Bank of England therefore decided to start buying bonds, in principle until the end of this week. This now appears to have been insufficient. Ten-year government bond yields have risen to around 4.5 percent in recent days – the level they were just before the central bank’s first intervention. On Tuesday, after the second intervention, the interest rate on the British government debt fell only slightly. Also read: DNB: Risk that households will not be able to meet mortgage obligations is increasing Unsecured Tax Reduction Investors have begun to question the soundness of Britain’s public finances since Chancellor of the Exchequer Kwasi Kwarteng announced £45 billion (€51 billion) in tax cuts on September 23, which are not covered by austerity measures. Since then, Kwarteng has withdrawn one element of this package – the cut in the top tax rate – but that has barely closed the budget gap. The stress is centered on the UK pension sector, which has been in trouble as it has become increasingly expensive for pension funds to hedge against the big movements in the bond markets. Movements largely fueled by the policies of Truss and Kwarteng. From a ‘financial stability’ point of view, the Bank of England is now intervening, but reluctantly. The bank wanted to start selling government bonds – in order to raise interest rates. Monetary policy, in fact, requires a higher interest rate to deal with peak inflation. The central bank is now unwittingly cleaning up the shards of Truss’ policies. Uncertainty not gone The question is whether the new intervention by the central bank will restore calm to the markets. In principle, the temporary bond buying program of the Bank of England will run until the end of this week, but the underlying uncertainty among investors has by no means disappeared. Truss and Kwarteng have not yet provided any clarity about how they will finance the proposed tax cut. On Monday, Kwarteng announced that he will bring forward the presentation of a medium-term budget plan from November 23 to October 31.