The UK government transferred £14.3 billion ($18.3 billion) to the Bank of England in July, the single biggest state transfer to the bank on record, in order to meet shortfalls in its monetary stimulus program.
(Bloomberg) — The UK government transferred £14.3 billion ($18.3 billion) to the Bank of England in July, the single biggest state transfer to the bank on record, in order to meet shortfalls in its monetary stimulus program.
Losses on the Bank of England’s quantitative easing measures have cost the taxpayer almost £30 billion in the past 11 months, according to official figures released Tuesday by the Office for National Statistics.
The July sum is £5.4 billion more than forecast by the Office for Budget Responsibility in March, underscoring the devastating impact that high interest rates are having on the public finances.
QE affects the public finances because the bank bought UK government bonds with £875 billion it created between 2009 and 2021. Those gilts pay a fixed interest rate to the bank. The new money it created, known as “central bank reserves,” is held by high street lenders and earns interest at the bank’s main rate.
When interest rates were below 2%, the QE program was profitable for the bank, which transferred the gains backs to the government. With the BOE’s key rate at 5.25%, the program is now deeply in the red, with net payments now being made to the commercial banking sector.
The losses make it more difficult for the government to boost spending on public services or deliver tax cuts. The QE program saved the government about £120 billion between 2009 and 2022, but the situation has reversed since interest rates hit 1.75% last year.
The BOE’s own projections show the taxpayer will need to transfer about £220 billion to the bank in the seven years to 2030 alone. Over its lifetime, QE is likely to cost the state a net £150 billion.
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