Bank QE policy ‘to cost £104bn to unwind’

TAXPAYERS face a £100bn bill to cover losses linked to the Bank of England’s money-printing programme, amid warnings that a jump in interest rates could raise the cost by a further £50bn.

The Office for Budget Responsibility, the Government’s tax and spending watchdog, estimated that the lifetime cost of unwinding the scheme, known as quantitative easing (QE), currently stood at £104.2bn.

The Bank bought up almost £900bn of UK debt during the pandemic and financial crisis in an effort to prop up the economy. At the time, it generated huge profits that were transferred to the Treasury as the Bank made more money on its holdings of UK gilts than the interest it paid on reserves held by commercial lenders. This has reversed as interest rates have surged. The Bank has also started actively selling some of its stockpile of gilts at a loss.

“Since Bank Rate and gilt yields rose from their record lows in the second half of 2022, the Bank of England’s Asset Purchase Facility (APF) has gone from making a profit to making a loss,” said the OBR. “Having transferred £123.9bn of cash profits to the Treasury between January 2013 and October 2022, a total of £49.4bn has been transferred from the Treasury to cover losses incurred by the APF since then.”

The OBR said its current estimate of the lifetime cost of quantitative tightening as the Bank continues to reduce its stockpile of debt was £21.9bn lower than forecast in November as lower interest rates reduce the Bank’s costs.

The OBR cautioned that these estimates for the cost of QE were far from comprehensive because money printing “supported the economy, asset prices, and financial markets at various points of stress over the past 15 years”.

It added: “The wider economic and fiscal benefits of these interventions would need to be considered.”