The BoE said it was keeping its goal to reduce its 838 billion pounds ($892 billion) of gilt holdings by 80 billion pounds over the next year, but would postpone the start of sales - due to begin next week - because of the market conditions.
Its decision follows turmoil in UK markets, which have seen British gilt yields soar and sterling fall to record lows, with investor confidence shaken by Friday's mini-budget.
MARKET REACTION:
FOREX: The pound briefly dropped as much as 1% against dollar, before paring some losses. It was last down 0.4% at $1.0693.
BONDS: Gilt futures soared and gilt yields fell sharply. The UK's 10-year bond yield was last down 42 basis points at 4.08% .
STOCKS: The FTSE-100 stock index was last down 0.3%, having fallen to its lowest since March earlier on .
COMMENTS:
JOHN HARDY, HEAD OF FX STRATEGY, SAXO BANK, DENMARK
"The pressure on UK rates to rise is breaking financial markets in the UK, which is at odds with the Bank of England's intention to tighten policy, which means they had to move.
As the rest of the world is in tightening mode, this should be sterling negative. We have seen some oddball reactions as the market tried to deal with it, and there was a bit of shift in risk sentiment with people thinking 'OMG is the Bank of England the canary in the coalmine, will other central banks have to shift?', but it's a bit early for that trade. All other things being equal this should be sterling negative."
CHARLES DIEBEL, HEAD OF FIXED INCOME STRATEGY, MEDIOLANUM ASSET MANAGEMENT, LONDON
"With the announcement just now they have put something of a floor under the market in the short term.
"However, the pro cyclical fiscal policy remains and as such the respite may not be long lasting."
"That said, given the announcement there is a line in the sand with respect to their tolerance for weakness, so something of a "Fed Put" is now in effect...a bank put I guess."
KENNETH BROUX, CURRENCY STRATEGIST, SOCIETE GENERALE, LONDON
"This intervention follows the statement earlier in the week. They have to stabilise the bond market as confidence has totally evaporated.
The surge in bond yields threatens the housing market and broader economy. But the BoE still has to raise the policy rate.
You also have the contagion element. The IMF and the US Treasury waded in yesterday in fear of global contagion from Gilts to other markets.
The BoE is stepping in for the government who is not going to turn on fiscal policy."
(Reporting by the London Markets Team; Compiled by Dhara Ranasinghe)
