I have long argued the Bank of England should stop selling long bonds in the market, taking big losses and sending Treasury and taxpayers the bill. I was pleased to see an article in yesterday’s Telegraph going over this old ground again. It does need a new push with a new Chancellor, who could persuade the Governor to change this damaging policy.
Labour had no criticism of the Bank’s decision to announce a major sale of bonds at the time of the Truss budget,. They watched the predictable big sell of in bonds, then saw the Bank reverse its policy, announce temporary buying of bonds and watched as the market rallied strongly. They never objected to the huge losses the Bank recorded from end 2022 onwards both by selling bonds at big losses in the market which were needless and by having to accept smaller losses on bonds as they matured, all covered by taxpayers and the Treasury.
Now the new Chancellor should think again. He should ask the Governor why he still thinks it a good idea to lose well over £200 bn on bonds from Q3 2022 to the end of the bond programme and seek to persuade him in private that a change of policy is needed. No other Central Bank is behaving like this. The losses can and should be reduced.Taxpayers deserve a break from the Bank’s extreme policy.
I have written about it many times from 2022 onwards. Here are two takes from this site:
10 June 2025
The first thing to do is for the Chancellor to tell the Bank she will not pay for any more losses from selling bonds in the market. No other central bank does this. There is no stated good purpose for the policy.The Chancellor’s permission was needed for the purchase, and the Treasury guarantees against loss.This gives her the right to order a stop to sales.
The second is to raise with the Bank the running losses where the Bank spends far more on interest on commercial bank deposits than it receives in interest on the bonds which were bought at very high prices when interest rates were much lower. The ECB for example pays a lower rate of interest on its deposits than its lending rate . The Bank of England has the same rate for lending and borrowing. The Bank could require a minimum level of reserve deposits by commercial banks at zero interest.
Some suggest paying nothing on any of the deposits. This has not been tried in recent years when these much larger deposits have built up. The ECB got away with reducing the interest it pays. Markets might be more alarmed by the sudden withdrawal of all interest payments to banks. There could also be a knock on effect on bank lending and growth from the sudden sharp reduction in bank profits and cashflow. Better to proceed with more prudent steps to carry markets with you.
And
Bank of England losses
Amidst the many figures and forecasts in the March budget there was one that stood out which got too little attention. The Official figures said the Bank of England’s bond buying which had sent the Treasury £124 bn of profits in the early years will end in overall loss of £104 bn when they have finished their fire sale and run off of the bonds. That is a hidden way of saying they plan to lose £228 bn on bonds from Q3 2022 onwards. Taxpayers have so far had to stump up £49 bn of this loss by March 2024, with more big bills this year.
This whopping increase in public spending goes undiscussed in Parliament now I have stood down. The last Chancellor wrote a letter saying this is a real cost to the public sector which reduces scope for other spending and or leads to higher taxes. The Bank of England for its part denies that selling all these bonds at low prices is important to its monetary policy. It wants us to believe these sales do not depress bond prices and therefore push up interest rates. The time when they first announced a major programme of £ 80 bn of sales was the start of the big autumn 2022 bond sell off, when the news coincided with a rate hike and triggered the LDI problems.
No other Central Bank thinks it clever to incur big losses by selling bonds they paid too much for at depressed prices they help create by the sales. No other central Bank sends a huge bill to taxpayers. Why do we put up with this? Why do we pay the Governor more than £500,000 a year for being the world’s worst large scale bond trader, presenting us, the taxpayers, with a forecast £228 bn bill?
Today:
It is high time the Bank took its selling pressure off a worried gilt market, and high time the Treasury was spared yet more and bigger bills for these avoidable and needless losses from sales in the market. The Bank’s big bond experiment is proving far too expensive and far from helpful.