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☆ The Bank of England is facing major losses on its bond purchases — and it's set to get much worse
▼ + stars: | 2023-08-30 | by ( Elliot Smith | ) www.cnbc.com time to read: +4 min

In late July, the central bank estimated that it would require the U.K. Treasury to backstop £150 billion ($189 billion) of losses on its asset purchase facility (APF). It saw the BOE accrue £895 billion worth of bond holdings while interest rates were historically low. However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. watch now"First, interest rates have risen far above levels assumed in the fiscal watchdog's spring forecasts. "On the other hand, though, while QE gilts are not sold, the BoE pays Bank Rate on the ~£900bn reserves it created to buy them.

Persons: Dan Kitwood, BOE, Sanjay Raja, Raja, Imogen Bachra, BoE, Bachra, QE Organizations: Bank of England, Getty, Deutsche Bank ., Treasury, AFP, Deutsche Bank, Bank, NatWest, — Locations: —

☆ Reactions: UK's Truss fires Kwarteng, set to U-turn on tax cuts
▼ + stars: | 2022-10-14 | by ( ) www.reuters.com time to read: +5 min

LONDON, Oct 14 (Reuters) - British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng and news reports said she will scrap later on Friday parts of the economic programme of big, unfunded tax cuts that they delivered last month. Consequently, the scope for a rally in gilts (move lower in yields) and sterling would seem to be limited." BENJAMIN NABARRO, ECONOMIST, CITI"The key issue in the near term is the contradiction between monetary and fiscal policy. RACHEL REEVES, OPPOSITION LABOUR PARTY'S FINANCE CHIEF"This humiliating u-turn is necessary - but the real damage has already been done. We may well be through the worst of the volatility but I fear that the UK is nowhere near out of the woods."

But it is unclear how many lenders are tapping the facility and whether pension funds are willing to shell out additional fees for what is a temporary solution, sources told Reuters. Banks are reluctant to increase their lending to LDI funds through the repo facility, according to one official at a European bank. BRIDGING THE GAPLDI is an investment strategy sold by asset managers like BlackRock, Legal & General Investment Management and Insight Investment to pension schemes to help them match their assets and liabilities. Governor Andrew Bailey has rejected calls to continue buying bonds from pension funds which say they still need support beyond Friday. "It's a bridging tool that they can still use to keep the dialogue with the market and the pension funds going."

☆ UK in pandemic-style easing without pandemic-style monetary policy, analyst says
▼ + stars: | 2022-09-27 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailUK in pandemic-style easing without pandemic-style monetary policy, analyst saysImogen Bachra, head of U.K. rates strategy at NatWest, discusses the U.K economy on "Street Signs Europe."

Finance minister Kwasi Kwarteng's plans will require an extra 72 billion pounds ($79 billion) of government borrowing over the next six months alone, and - a particular concern for investors - cement permanent tax cuts costing 45 billion pounds a year. But to bond investors, they bring the prospect of more persistent inflationary pressures - at a time when inflation is already near a 40-year high - as well as tighter Bank of England (BoE) policy. Government borrowing is likely to total 218 billion pounds this financial year and 229 billion pounds in 2023/24, Citi predicted, and it expects benchmark 10-year British government bond yields to rise to 4.25%. Adding to the pressure, on Thursday the BoE confirmed it planned to reduce its own 838 billion pounds of gilt holdings by 80 billion pounds over the coming year. "That is a strong indication that domestic and overseas investors are losing confidence in the UK's inflation-fighting credibility," he said.

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