UK Treasury to transfer £11bn to Bank of England to cover bond-buying losses

British MPs are set to debate the payment, which will cover losses for six months, next week

The Bank of England is to begin active sales of its quantitative easing programme next month.

The UK Treasury is set to transfer more than £11bn (€12.6bn) to the Bank of England to cover projected losses in its bond-buying programme, according to a person familiar with the situation.

The capital transfer was detailed in an update by the Treasury. The new injection is listed under “assistance to financial institutions — payment to the Bank of England”.  MPs are set to debate the payment, which will cover losses for six months, next week. 

The Bank of England is to begin active sales of its quantitative easing programme next month.

The transfer is a key milestone for the journey of the programme from being a government cash cow to liability. The bank began buying bonds in 2009 and has transferred around £120bn in profits from the scheme to the Treasury so far.

The sharp rise in interest rates and the steep fall in gilt prices ahead of the bank's planned sales have now reversed the flows for the first time. An initial £828m already been transferred.

In a written ministerial statement, Andrew Griffith, financial secretary to the Treasury, said the UK government is seeking parliamentary approval for the disbursal this month. 

Until MPs approve the transfer, an £828m advance has been made from the contingencies fund. The Bank of England bought £895bn of UK government and corporate bonds between 2009 and 2021 to provide economic support after interest rates were cut as low as they could go. 

The recent fall in bond prices, after interest rates shot up, has left the remaining the £838bn portfolio of gilts carrying a market loss of about £200bn. 

Bloomberg