Pensions faced being wound up due to the turmoil in the markets following the mini-budget, the deputy governor of the Bank of England has said.
Sir Jon Cunliffe was writing in response to a letter from the chair of the Treasury Select Committee, Mel Stride.
In it, Sir John noted that the “first concerns” about the state of the economy came after the “growth plan” announced by Chancellor Kwasi Kwarteng on 23 September.
Sir John added that the following week, the Bank got news of “increasing severity” from the markets – including some types of pension funds that lend the government money and get paid back over decades.
On Tuesday night, the Bank was told by managers that some pension funds risked falling into “negative net asset values” – and may begin “the process of winding up” on Wednesday 28 September.
This would have had a knock-on effect and threatened “severe disruption of core funding markets and consequent widespread financial instability”, the deputy governor said.
Bank of England employees worked overnight to come up with a plan to buy some government debt to stabilise the market.
So far, £3.7bn worth of debt has been purchased by the Bank.