Growth and the money squeeze

The Bank of England is the only one of the three big western Central Banks  (EU/US/UK)  to be selling lots of bonds at  big losses and sending the bills to the taxpayers. The UK is the only one of the three to be reinforcing a major money squeeze with a fiscal squeeze at the same time.

The US has offset a lot of its big money squeeze with a major expansion of spending and borrowing in the year to September 2023. It would have been better to have achieved the same effect with lower taxes. Despite the increases in interest rates and bond sales with uncovered losses the US economy has been achieving a good rate of growth.

The European Central Bank refuses to sell bonds at big losses and has paused its rate rises at a lower level than the US or UK. The EU economy is performing poorly, and may well persuade the ECB to be the first of the 3 wayward Central Banks to start to lower rates again.

All 3 Central banks printed too much money and bought too many bonds well into the covid recovery period. This proved to be inflationary. The Swiss and Chinese who did not do the same did not have the rapid inflation as a result despite experiencing the high energy prices. It is a bad idea to compound the error of creating too much money and keeping rates too low by now creating too little and selling bonds at huge losses to be paid by the  Treasury.

The Bank needs to think again. It needs to speed its review of its past forecasts and its inflation model. It needs a new one urgently to avoid more errors.


  1. Mark B
    December 13, 2023

    Good morning.

    The BoE is going for a recession to curb inflation. It is the only trick in its book to achieve its mandate to keep inflation low.

    Had the government not gone into lockdown due to dodgy data and those seeking to extend their power, then the government would not have needed the BoE to print so much money.

    Cause and effect. And the effects are being felt at just the wrong time.


    1. Lifelogic
      December 13, 2023

      Well not just the net harm lockdowns but Sunak’s and BoE QE currency debasement that caused the inflation. Net harm vaccines too, certainly for anyone under about 60 or who had had covid already. The sick joke Covid inquiry with the joker KC continues costing £1m per week studiously avoiding the main issues.

      Currently a huge credit squeeze is doing huge harm.

    2. Peter Wood
      December 13, 2023

      Our government is still borrowing money to cover it’s budget deficit. So there is the BoE selling gilts at the same time as the Treasury selling new bonds, we are heading into real trouble unless spending is cut.
      The Treasury paying the BoE for its losses on Gilt sales simply means there is less ‘money supply’, Treasury hands over cash to BoE which is then cancelled; which is the main desired effect of QT.

      1. formula57
        December 13, 2023

        @ Peter Wood “The Treasury paying the BoE for its losses on Gilt sales simply means there is less ‘money supply’…” – true unless the other side of the accounting entry is considered which is that the Treasury is booking losses transferred from the Bank that are then shown in its own increased borrowing. Accordingly, the Bank’s bond sales, as unnecessary as they are unjustified, have a direct, harmful impact upon us all.

  2. Will
    December 13, 2023

    Once again, that magical word “model”.
    Have none of our institutions learned anything about the liabilities of all models – that they simply reflect back all of the open and hidden assumptions built into them by their creators. We have seen this repeatedly with the now notorious Ferguson models of a sequence of infectious diseases, all disastrously over estimating the consequences, and with the hopelessly error prone BoE financial models. Where is that critical aspect of human judgement? Does no-one actually question the modellers about their assumptions, and ask for other scenarios to be considered?

  3. Lifelogic
    December 13, 2023

    So the “let’s distract from the millions of legsl immigrants the Tories have welcomed in to undercut UK wages Rwanda” bill passes. But without withdrawing from the ECHR and dealing with Blair’s Supreme Court it is clearly just pointless.

  4. Lifelogic
    December 13, 2023

    Rishi says “The British people should decide who gets to come to this country – not criminal gangs or foreign courts. That’s what this Bill delivers.”

    So how on earth does he come to this moronic conclusion? The British people decide almost nothing, they merely get a vote about every five years usually for the least bad option of two candidates. People who very rarely even try to do what they promised before the election after the election. Less than 100k net migration we were promised by Cameron and the Conservatives in 2010 but we get 1.3 million. The British people cannot even decided not to pay the BBC propaganda outfit tax. A tax they then use £100k of this to try to prevent viewers knowing the truth about Martin Bashir Lady Diana interview scandal!

  5. DOM
    December 13, 2023

    Bailey’s acting politically and that’s unacceptable. If this idiot wants to campaign for Labour and the EU then he should step down and run as a candidate at the next GE.

    Deliberately engineering a possible recession to smooth a pro-EU Labour victory at the next GE is quite simply outside Bailey’s legal remit though of course if Tory MPs aren’t prepared to expose this filthy charlatan then what is the bloody point of it all?

    as an aside. The Tory Chief Whip must have some juicy gossip on backbench Tory MPS for them to have capitulated so readily. Pathetic

    1. formula57
      December 13, 2023

      @ DOM – no doubt he does but perhaps the Tory Chief Whip was whispering about the prime minister’s willignness to accommodate amendements when the Bill is again debated.

    2. John Hatfield
      December 13, 2023

      Did he not engineer Truss’s ousting?

  6. hefner
    December 13, 2023

    O/T, 11/12/2023 ‘UK firms with below average productivity employ 70% of workers’.

  7. agricola
    December 13, 2023

    I suspect that the decision makers in ths BOE are not of an entepreneurial mindset. They have little to offer, being financial pathologists after the event rather than the physicians and surgeons that the economy requires. They will not get the guidance required from the current time expired government so the misery will continue.

  8. Donna
    December 13, 2023

    In 2007/8 we were forced to bail out the corrupt High Street Banks.

    Now the Government is effectively forcing us to bail out the corrupt Bank of England. The Chancellor is signing off these Bond sales.

    “LONDON, Nov 3 (Reuters) – British finance minister Jeremy Hunt said on Friday that the government would carry on working with the Bank of England over the central bank’s sales of its massive bond-buying purchases, which represent a big cost for the government.

    From Reuters:
    “HM Treasury and Bank of England officials will continue to monitor the APF’s (Asset Purchase Facility’s) implementation and risks to the Exchequer,” Hunt said in an exchange of letters with BoE Governor Andrew Bailey. Hunt agreed to reduce the authorised maximum size of the APF to 751 billion pounds ($918 billion) under an update to the programme which reflects the BoE’s bond sales.” Any future cash transfers will be handled under the terms of the indemnity as has been the case to date.”

    The Government capitalised the costs of lockdown for Big Business, Big Pharma, quite a few “mates” and a very large number of fraudsters …… and is now socialising the costs.

  9. Bryan Harris
    December 13, 2023

    The Bank of England is the only one of the three big western Central Banks (EU/US/UK) to be selling lots of bonds at big losses

    Clearly we haven’t yet hit our debt target – with resources in the bank we are still able to function.

    The bonds sales are being used to make us less able to stand up economically by destroying the value of the resources we hold.

  10. Bloke
    December 13, 2023

    There is vacancy in the Governor of the Bank of England’s ability to make good decisions. His post should be recruited from Switzerland to obtain the judgement and guidance of a sensible operator who has skills of precision, without hit and miss guesswork.

  11. Berkshire Alan
    December 13, 2023

    Pointless crystallising a loss when it is not necessary, unless you are investing in something with much better returns than the losses.
    Do they know something that few others know.?

  12. Original Richard
    December 13, 2023

    “It [the Bank] needs a new one [inflation model] urgently to avoid more errors.”

    These are not “errors” but deliberate policy together with mass immigration and the economy destroying Net Zero to achieve global equity and reparations for our past misdeeds:

    PM Johnson speech at the UN 22/09/2021 :
    “We started this industrial revolution in Britain: we were the first to send the great puffs of acrid smoke to the heavens on a scale to derange the natural order.”

    PM Sunak speech at COP26, when Chancellor :
    “So our third action is to rewire the entire global financial system for Net Zero.”

    If the UK electors do not wish to follow this path then they’re going to need to stop voting for those who do.

  13. formula57
    December 13, 2023

    Copied to my own MP.

  14. graham1946
    December 13, 2023

    You don’t like selling bonds at a loss – quite right. However, you do advocate selling Natwest shares at a huge loss, just when they are making good profits. Something does not add up. Is it the old Tory adage of privatising the profits and nationalising the losses? Certainly seems like it. Why not keep a profitable business which will make a return to the government when it needs all the money it can get as it will not cut its costs in a meaningful way – i.e. it likes having a big damaging austerity programme to ruin public services, bur keeps in place all the jobs for the boys, the diversity nonsense in the NHS and government, the quangos etc. etc. I heard they are even going to pay for government employees to have African drumming lessons! My God, what a shower this government is.

  15. Bert+Young
    December 13, 2023

    The BoE has made so many mistakes ; its leadership and those involved with setting decisions must be sacked . I do not understand how 10 Downing St can allow the mistakes to continue . The dignity and economic reputation of the country is at an all time low .

  16. The Prangwizard
    December 13, 2023

    Big stuff, no doubt important.

    But what about ordinary people, especially those who would like to advance themselves. Why are they required to start paying tax so soon on their earnings?

    Those on high earnings are not so troubled about the present tax allowance level, but someone on £25k or £30k is.

    Raise it to £20,000. And as for its cost, cut back on the splashing around of billions annually to benefit foreign interests to begin with, and there are any number of other incompetencies.

    Lots of course will come back from personal spending which will increase.

  17. Keith from Leeds
    December 13, 2023

    Why is the Chancellor not overruling Andrew Bailey to stop selling bonds at a loss? Why has he not sacked Andrew Bailey? The man is an incompetent fool, as those with 39.9% overdrafts will tell you.
    He failed at his last job, so he gets promoted to do even more damage in his current one.

  18. oldwulf
    December 13, 2023

    Presumably if HM Treasury made it clear that it was not prepared to pay for the losses then the B of E would not sell the bonds ?

  19. Ian B
    December 13, 2023

    As bad as the US is, politically speaking at the moment, they actually have an economy. That means they have the means to pay for stupidity. In the UK we have this thing masquerading as a Conservative Party at of its depth thrashing around and not managing anything. Something to do with being disciples of the Socialist WEF, that controls them

  20. Lindsay+McDougall
    December 14, 2023

    HM Government is refusing to cut public expenditure in order to make room for tax cuts. UK borrowing in FYR 2023/24 is likely to hit £200 billion once the losses made by the BoE in the bond markets are factored in. A non-inflationary borrowing requirement would be about £50 billion. The rumour is that to prevent inflation, the BoE will keep Base rate higher than would otherwise be necessary. This would cause more misery among mortgage holders and damage the Government’s electoral prospects. The Tory Wets, led by the Sunak/Hunt axis, are behaving like the Gadarene swine, with no hint of self preservation.


  21. Mr J Bolsover
    December 22, 2023

    I sent this to the Editor Daily Telegraph, who did not think it worth publishing.

    Your Matthew Lynn talks of replacing Andrew Bailey as Governor of the Bank of England. (Saturday December 16th) Not a day too soon. How long can the pilot be allowed to fly at the wrong altitude as mountains appear on the radar?
    Any addict or pusher will know that the price is not important. It is only the supply that counts.
    Mr Bailey pushed the supply when the addict asked for more.
    Now he is curtailing supply like never before and deluding addicts by talking about the price of the drug.
    The price will collapse and economic activity with it, as is already happening.
    Either change course or fire the pilot, whose record at landings is abysmal.
    John Bolsover

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