Having failed to cool the sell-off with verbal interventions over the previous two days, the BoE announced an emergency move that it said would prevent the turmoil in markets from spreading through the country and seizing up credit flows.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the central bank said in a statement that immediately eased pressures on soaring British government bond yields.

The Treasury said it would fully indemnify the operations.

Sterling was down 0.7 per cent at $US1.065, having dropped to a session low of $US1.0618.

The BoE said it was keeping its goal to reduce its STG838 billion ($A1.39 billion) of gilt holdings by STG80 billion over the next year, but would postpone the start of sales - due to begin next week - because of the market conditions.

Earlier the International Monetary Fund and ratings agency Moody's had ramped up pressure on Britain to reverse its new strategy that was set out by new finance minister Kwasi Kwarteng on Friday in a move that he said would ignite economic growth.

The rare intervention about a G7 country from the IMF, the global lender of last resort, underscored the severity of the situation facing Britain, with the value of the pound and British bonds collapsing since Friday.

The Bank of England said on Monday it would not hesitate to raise interest rates and was monitoring markets "very closely". On Tuesday its Chief Economist Huw Pill said the central bank was likely to deliver a "significant" rate increase when it meets next in November.

Despite those comments, the market had remained in turmoil.

Earlier on Wednesday 30-year British government bond yields rose above 5 per cent for the first time since 2002. Following the BoE statement, 30-year yields dropped more than 50 basis points on the day.

The latest crisis to hit the British state was triggered by Kwarteng's plans for deep tax cuts and deregulation to snap the economy out of a long period of stagnation, seen as a return to Thatcherite and Reaganomics doctrines of the 1980s.

With the cost of British borrowing soaring, mortgage lenders pulled hundreds of products and anecdotal reports said people were struggling to get through to lenders to either complete or change mortgage deals.

That would mark a major shock in a country where rising house prices have for years conveyed a sense of overall affluence, and where home buyers have got used to more than a decade of rock-bottom interest rates.

The IMF said the proposals, which sent the pound to an all-time low of $US1.0327 on Monday, would add to a crisis of credibility after the government cut taxes and hiked borrowing just as the Bank of England lifts interest rates to tackle surging inflation.

"Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy," an IMF spokesperson said.

In a blunt release, Moody's said large unfunded tax cuts were "credit negative" for Britain, risking structurally higher funding costs that could weaken the economy.

Kwarteng, an economic historian who was business minister for two years, has responded to the criticism by insisting that tax cuts for the wealthy alongside support for energy prices are the only way to reignite economic growth.

Australian Associated Press