Bank of England could finance UK government

The Bank of England has agreed to temporarily lend the government money if needed to help finance its massive COVID-19 spending plans, reviving a measure used during the 2008 financial crisis.

Sensitive to claims it is resorting to ‘monetary financing’, or permanently supporting government spending by printing money, the BoE stressed its move was a short-term measure - with any money borrowed to be repaid by the end of 2020.

BoE Governor Andrew Bailey said on Sunday that monetary finance was anathema to central bankers and has linked it to hyperinflation in 1920s Germany and later Zimbabwe.

“As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from COVID-19,” the BoE said in a joint finance ministry statement.

Nonetheless, the BoE - which was founded in 1694 to help fund Britain’s wars against France - is more directly involved in the government’s finances than other counterparts such as the European Central Bank.