Bank of England's warning pension help to end worries investors

Investors remained nervous after the Bank of England insisted its emergency bond-buying scheme would end this week, dismissing reports it may be extended.

It said the help would end on Friday "as it made clear from the outset".

The Bank is buying bonds to stabilise their price and prevent a sale which could put some pension schemes at risk.

Bond sales rose after the statement, with borrowing costs almost as high as when the Bank first stepped in to calm market turmoil after the mini-budget.

Chancellor Kwasi Kwarteng's plans for huge tax cuts without a clear indication of how they would be paid for sparked a dramatic reaction on financial markets last month. The pound fell to a record low and bond prices also fell sharply forcing the Bank of England to step in to stop their price falling further.

The government raises money it needs for spending by selling bonds - a form of debt that is paid back plus interest in anywhere between five and 30 years.

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Pension funds invest in bonds because they provide a low but usually reliable return over a long period of time.

However, the sharp fall in their value after the mini-budget forced pension funds to sell bonds, threatening to create a "downward spiral" in their prices as more were offloaded, which left some funds close to collapse.

On Tuesday evening Andrew Bailey told pension funds: "You've got three days left now and you've got to sort it out."

The pound initially fell sharply against the dollar before steadying, after Mr Bailey's surprisingly blunt statement, which dashed hopes the support could be extended.

Mr Bailey told the BBC he had stayed up all night to try and find a way to calm markets and said the Bank was doing everything it could to preserve financial stability, but said it had always been clear that the help would be temporary.

He said it was now down to financial firms to arrange their affairs, saying pension funds had "an important task" to ensure they are resilient.

"I'm afraid this has to be done, for the sake of financial stability," he said.

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Members of the Bank's Financial Policy Committee (FPC), which helps to protect UK financial stability, said on Wednesday that the governor was crystal clear the bond-buying programme would end, although other support measures would remain in place.

The recent turmoil has already fed through to the mortgage market, where hundreds of products have been suspended as the volatility has made it difficult for lenders to know how to price these long-term loans.

Last week, interest rates on typical two and five-year fixed rate mortgages topped 6% for the first time in over a decade.

The Bank's FPC said that this was likely to put households under severe pressure next year.

'Uncharted territory'

Earlier, pensions industry body the Pensions and Lifetime Savings Association had warned against the help ending "too soon".

It suggested the support should be extended until 31 October, when chancellor Kwasi Kwarteng is due to detail his economic plan explaining how he will balance the public finances. The statement will be accompanied by independent forecasts on the prospects for the UK economy.

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The government has said it remains confident in its tax cuts plan, with Mr Kwarteng telling MPs he was "relentlessly focused on growing the economy" and "raising living standards".

But Mr Bailey's words further increases the pressure on the government, and the chancellor, to come up with an economically credible and politically viable debt plan, and quickly.

Labour's shadow chancellor Rachel Reeves said: "This is a Tory crisis that has been made in Downing Street, and that is being paid for by working people."

Former IMF deputy director Mohamed El-Erian told BBC News that the economy was on "shaky ground".

He said financial systems going into turmoil "can cause a lot of damage".

In its latest World Economic Outlook report on Tuesday, the IMF acknowledged the mini-budget would "lift growth somewhat in the near term", although it would "complicate the fight" against the cost-of-living crisis.