Sky News are currently reporting breaking news after an exclusive interview with the Governor of the Bank of England, Andrew Bailey.
Mr Bailey has stated that without the Bank of England’s intervention in the early stages of the pandemic, the country would have been unable to meet its liabilities, effectively rendering the country insolvent. The rate at which the central markets declined was unprecedented and required urgent action from the Bank of England. Whilst these statements may be shocking to hear, it is more that Mr Bailey is confirming what, undoubtedly, everyone in the financial services industry likely already knew.
The Bank of England has been busy providing stimulus to the economy buying government bonds (quantitative easing) and Sky news has reported that it is buying them at a significant rate, which is in fact outstripping the rate the of government borrowing. The Bank of England announced last week that it would be increasing quantitative easing by £100bn to £745bn to cover significant shortfalls in the country’s balance sheet.
The government has, and still is providing significant funds through loans, grants and furlough, benefit payments have gone up and tax revenues have nosedived with large parts of the economy still shut down. It is no surprise that the Bank of England is putting in place measures to ensure the UK’s survival.
What is interesting to note is that Sky News is also reporting that the independence of the Bank of England is being called into question by some former members of the Monitory Policy Committee, with questions over the integrity of the Bank of England in making such significant bond purchases, effectively shutting the door any other interested parties.
In Bloomberg this week, Mr Bailey also commented that he thinks the bank should unwind the asset purchase QE before meaningfully raising interest rates, a reverse of the long-standing Bank of England policy.
Since coming into existence in 2009, quantitative easing has only increased. Currently more than 30% of the national debt is held by the Bank of England with a cumulative total of £745bn and with the remainder of a pandemic to get through, it is unlikely that this will be reduced any time soon.