The Bank of England on Tuesday updated its estimates for the overall losses likely to be made by its quantitative easing bond purchase programme.
BY THE NUMBERS
The estimates assume the BoE will unwind its government bond portfolio at the current pace of 100 billion pounds ($127 billion) per year.
Based on the market path for interest rates as of late June, the QE programme looks set to generate a net loss of 95 billion pounds by 2034, compared with an estimate in April of 85 billion pounds.
If interest rates were to fall back gradually to around 2.5%, the BoE’s 2018 estimate of the non-inflationary equilibrium rate, then the loss would be 45 billion pounds, unchanged from the previous estimate.
WHY IT MATTERS
Losses generated over the life of the QE programme have become a topic of political debate, because are covered by the taxpayer at a time when the government resources are increasingly stretched.
New British finance minister Rachel Reeves has said she does not plan to change the way the BoE pays interest on bank reserves issued for its QE programme.
CONTEXT
Through the 2010s, the government received profits made by the QE programme when interest rates were low, which peaked at 124 billion pounds in 2022.
Those flows have reversed and now the government foots the bill for losses incurred by the BoE.
The net loss forecasts take account of the earlier profits.
The BoE’s purchases of gilts peaked at 875 billion pounds after the COVID-19 pandemic and currently stand just over 690 billion pounds.
(Writing by William Schomberg, editing by Andy Bruce)
