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The Bank of England has estimated that it will require the UK Treasury to transfer a total of £150bn by 2033 to cover expected losses on its bond-buying quantitative easing programme, if interest rates follow the path implied by market pricing.
The programme was designed so that the central bank is indemnified by the Treasury against losses. The transfers represented both the continuing cash flow losses of the QE scheme, and gains or losses made by the central bank when government bonds mature or the central bank sells the assets, the central bank said on Tuesday.
Early profits on the scheme were always expected to turn into losses when interest rates rose, but the estimated cost to taxpayers over the life of the programme has increased sharply in the last year as interest rates have risen.
Jagjit Chadha, director of the National Institute for Economic and Social Research, said it was “increasingly clear” that ongoing losses would act as a constraint on fiscal policy in any pre-election Budget, as they were now larger than the Office for Budget Responsibility had factored into its forecasts.
This is a developing story
