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UK: Bank of England doubles bond buying

In an unexpected U-turn, the Bank of England temporarily doubles bond buying in the UK.

Bank of England doubles down on QE operation

In recent days, conspicuous controversy had added to the announcement by the government of newly appointed Premier Liz Truss about her intention to lower taxes on the upper-middle class and begin Quantitative Easing so as to meet the high bills faced by the population and the productive fabric of the country.

The move by Truss, previously blocked promptly by the Bank of England, had been favorably reconsidered in some of its aspects as the days went by, and the choice was made to continue with the Quantitative Easing so longed for by the Premier in order to come to the aid of the people of King Charles III’s Kingdom.

Kwasi Kwarteng, England’s Finance Minister in September had caused concern among investors by declaring a series of tax cuts without hedging, the Central Bank finally decided on the 28th of last month that it would temporarily buy up to £5 billion a day of bonds with a maturity of at least 20 years.

The Bank of England has expressed a firm willingness to support further easing of liquidity pressures faced by liability-driven investment funds through regular Indexed Long Term Repo operations every Tuesday.

The massive sell-off of government bonds after Kwarteng’s statement of intent last month triggered a run on liquidity for British pension funds that had to give extra collateral on top of their existing collateral.

In just a few days, the Central Bank has come up with an unexpected as well as hoped-for U-turn, and this morning came the news that not only has the Bank of England now softened its stance but has decided to double its purchase of government bonds, although it has been keen to emphasize this is entirely temporary.

It appears that the move should only be a one-off but analysts are willing to bet that given the state of health of the UK economy this will be the first in a long series of decisions aimed at increasing that much-ballyhooed and much-discussed Quantitative Easing which at this stage is not about issuing new liquidity but about burdening the UK coffers with some of the taxes and levies on the real economy and industrial fabric especially energy (electricity, gas and hydrocarbons).

The macroeconomic picture in the UK

The British economy compared to that of its American cousins is in much worse shape with employment levels far below US figures and inflation almost four points higher and which has not yet peaked.

This situation has set the country’s Central Bank back on its heels, which understood how a policy of raising rates with a momentarily unvirtuous volute and a fragile society would only amplify the damage by tearing the country apart before a cure was reached.

The move to act both on rates and on the pockets of households and businesses according to the Premier and also according to the King will bring the British boat into calmer waters in anticipation of a revival of the country:

“In the last week of operations, the Bank is announcing additional measures to support an orderly conclusion of its purchase program. The Bank is ready to use this spare capacity to increase the maximum size of the five remaining auctions above the current level. of up to £ 5 billion in each auction.”

The auction will start at 8:00 AM (GMT) and will be fixed at up to 10 billion pounds for Monday, however it is within the powers of the Bank of England to decrease or increase the bidding which can be as high as 40 billion.

George Michael Belardinelli
George Michael Belardinelli
A former corporate manager at Carifac Spa and later at Veneto Banca Scpa, blogger and Rhumière, over the years he has become passionate about philosophy and the opportunities that innovation and the media make available to us, in particular the metaverse and augmented reality
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