The Bank of England (BoE) estimates it will cost the taxpayer £150billion by 2033 to cover anticipated losses on its quantitative easing (QE) programme. The staggering total is up from a previous calculation of £100billion.
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Losses were expected when interest rates rose after the scheme had initially turned a profit, but the estimated cost to British taxpayers has climbed with the Bank’s tightening of monetary policy. Its Base Rate is currently five percent with the Bank’s next rate announcement due on August 3.
Threadneedle Street published its latest estimate of Treasury transfers to cover losses on its asset purchase facility on Tuesday.
The Bank launched its QE programme during the global financial meltdown in a bid to dig the economy out of a hole at a time when interest rates were at historic lows.
It now has bond holdings of £895billion, but started to unwind these in 2022, initially by stopping reinvestments of maturing assets but later selling bonds at an expected annual pace of around £80billion.
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The BoE made a deal with the Treasury in 2009 to secure Threadneedle Street against losses over the QE scheme to make sure monetary policy is not limited by the Bank’s balance sheet.
But the taxpayer will pick up the tab with consequences for public services.
The Office for Budget Responsibility estimated losses for the rest of the QE programme will result in a £63billion cumulative net loss.
In April, the Bank of England was predicting losses could eventually reach £100billion.
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The latest estimates outlined in the BoE’s quarterly report show net transfers from the Treasury could amount to more than £150billion by 2033 to cover losses if interest rates take the path priced into markets at the end of June with an expected peak near six percent.
Threadneedle Street expects the Treasury to transfer about £40billion per year in 2023, 2024 and in 2025.
This is equivalent to about four per cent of GDP, and about £10billion more each year than the BoE had estimated in April.
It suggests the Government will be under even more pressure when it comes to the public finances before the next General Election.
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