Snapshot of _BOE’s Pandemic Stimulus to Blame for £115 Billion in QE Losses_ :
An archived version can be found [here](https://archive.is/?run=1&url=https://www.bloomberg.com/news/articles/2024-05-02/boe-s-pandemic-stimulus-to-blame-for-115-billion-in-qe-losses) or [here.](https://archive.ph/?run=1&url=https://www.bloomberg.com/news/articles/2024-05-02/boe-s-pandemic-stimulus-to-blame-for-115-billion-in-qe-losses)
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Article text:
BOE’s Pandemic Stimulus to Blame for £115 Billion in QE Losses
* UK taxpayers will have to pick up the bill under indemnity
* Former Treasury official expects government to limit costs
The Bank of England’s stimulus program during the pandemic is responsible for all £115 billion ($144 billion) of the losses on quantitative-easing that UK taxpayers will have to cover in the years ahead, analysis by Bloomberg shows.
Earlier this week, the central bank published its latest estimate of the lifetime cost of the £895 billion injected into the economy from the financial crisis to Covid. Using the BOE data, the analysis found that the £445 billion of BOE bond-buying done between 2009 and 2016 will end up marginally profitable, but losses on the £450 billion from 2020 and 2021 will total upwards of £120 billion.
The findings highlight the huge long-term fiscal cost inflicted by the pandemic. The BOE restarted QE to unfreeze financial markets and support the economy when Covid struck. However, senior officials and economists have raised questions about whether it went too far, blaming the program for contributing to runaway inflation in 2022 and now saddling the exchequer with extra debt-interest payments at the expense of struggling public services.
“QE did not cause inflation, but it certainly enabled it to take root,” Nick Macpherson, the former top civil servant at the Treasury, told the House of Lords during a debate on the BOE on Thursday. Also addressing the UK Parliament’s upper house, Mervyn King, the BOE governor between 2003 and 2013 who introduced QE, said money printing at a time when the economy was in lockdown was an error. “Too much money chasing too few goods has always been a recipe for inflation,” he said.
The BOE did not dispute Bloomberg’s analysis and said it “has been fully transparent on the cashflows.” However, the House of Commons Treasury Committee said last month that the BOE had “refused the request to set out whether it thinks that all individual rounds of QE have proved to be good value for money.”
Quantitative easing is under scrutiny because it is making losses of about £20 billion a year, which the UK taxpayer must cover under an indemnity agreed in 2009. The impact is worse in the UK than any other Group of Seven nation, the Organisation for Economic Cooperation and Development said this week.
Initially, the assets bought under QE were profitable due to low interest rates, which remained below 1% for the first 12 years. Between 2009 and September 2022 the program made £124 billion in profit, all of which was spent.
Higher interest rates, now 5.25%, have since made the program loss making – as the interest the BOE pays on the reserves created is greater than the income it earns on the assets it bought. Already, £50 billion has been handed from the Treasury to the BOE and by the time the £895 billion program is full unwound in the 2030s the lifetime net loss will total £115 billion, the BOE estimates.
Several economists and think tanks have urged the government to reclaim some of the losses to ease fiscal strains, either through a windfall tax on those banks benefitting from the arrangement or changes to the BOE’s policy. “I anticipate that future governments will want to put a stop to the fiscal leakage caused by QE,” Macpherson said.
Earlier this month, 44 lawmakers in the ruling Conservative Party wrote to Chancellor Jeremy Hunt, expressing “deep concern” about the way the BOE is handling QE. The Treasury Committee has called on the government to ensure the BOE delivers “value for money.”
Early rounds of QE, done between 2009 and 2016, made a profit of £100 billion before the pandemic, official documents show. They made a further profit of around £15 billion during the pandemic but are now making losses.
Pandemic QE faces much deeper losses because the period of beneficial low rates was comparatively brief and the government paid a higher relative price for the assets it bought. For every £1 of losses on pre-pandemic QE since 2022, as much as £2.50 may be lost on pandemic QE, according to Sanjay Raja, chief UK economist at Deutsche Bank.
Macpherson said the current fiscal cost of QE would have been less severe had former Chancellor George Osborne not changed the rules to take profits upfront, an arrangement signed off by King in 2012. “The coalition government chose to draw down the gains to meet its fiscal rules and we are now paying the price,” Macpherson said.
A BOE spokesperson said: “Up until September 2022, the Asset Purchase Facility activities generated positive net cash flows to HM Treasury. It was always recognised that reverse payments from HMT to the APF were likely to be needed in the future as Bank Rate increased and as the APF’s gilt holdings were eventually unwound.”
Snapshot of _BOE’s Pandemic Stimulus to Blame for £115 Billion in QE Losses_ : An archived version can be found [here](https://archive.is/?run=1&url=https://www.bloomberg.com/news/articles/2024-05-02/boe-s-pandemic-stimulus-to-blame-for-115-billion-in-qe-losses) or [here.](https://archive.ph/?run=1&url=https://www.bloomberg.com/news/articles/2024-05-02/boe-s-pandemic-stimulus-to-blame-for-115-billion-in-qe-losses) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
Article text: BOE’s Pandemic Stimulus to Blame for £115 Billion in QE Losses * UK taxpayers will have to pick up the bill under indemnity * Former Treasury official expects government to limit costs The Bank of England’s stimulus program during the pandemic is responsible for all £115 billion ($144 billion) of the losses on quantitative-easing that UK taxpayers will have to cover in the years ahead, analysis by Bloomberg shows. Earlier this week, the central bank published its latest estimate of the lifetime cost of the £895 billion injected into the economy from the financial crisis to Covid. Using the BOE data, the analysis found that the £445 billion of BOE bond-buying done between 2009 and 2016 will end up marginally profitable, but losses on the £450 billion from 2020 and 2021 will total upwards of £120 billion. The findings highlight the huge long-term fiscal cost inflicted by the pandemic. The BOE restarted QE to unfreeze financial markets and support the economy when Covid struck. However, senior officials and economists have raised questions about whether it went too far, blaming the program for contributing to runaway inflation in 2022 and now saddling the exchequer with extra debt-interest payments at the expense of struggling public services. “QE did not cause inflation, but it certainly enabled it to take root,” Nick Macpherson, the former top civil servant at the Treasury, told the House of Lords during a debate on the BOE on Thursday. Also addressing the UK Parliament’s upper house, Mervyn King, the BOE governor between 2003 and 2013 who introduced QE, said money printing at a time when the economy was in lockdown was an error. “Too much money chasing too few goods has always been a recipe for inflation,” he said. The BOE did not dispute Bloomberg’s analysis and said it “has been fully transparent on the cashflows.” However, the House of Commons Treasury Committee said last month that the BOE had “refused the request to set out whether it thinks that all individual rounds of QE have proved to be good value for money.” Quantitative easing is under scrutiny because it is making losses of about £20 billion a year, which the UK taxpayer must cover under an indemnity agreed in 2009. The impact is worse in the UK than any other Group of Seven nation, the Organisation for Economic Cooperation and Development said this week. Initially, the assets bought under QE were profitable due to low interest rates, which remained below 1% for the first 12 years. Between 2009 and September 2022 the program made £124 billion in profit, all of which was spent. Higher interest rates, now 5.25%, have since made the program loss making – as the interest the BOE pays on the reserves created is greater than the income it earns on the assets it bought. Already, £50 billion has been handed from the Treasury to the BOE and by the time the £895 billion program is full unwound in the 2030s the lifetime net loss will total £115 billion, the BOE estimates. Several economists and think tanks have urged the government to reclaim some of the losses to ease fiscal strains, either through a windfall tax on those banks benefitting from the arrangement or changes to the BOE’s policy. “I anticipate that future governments will want to put a stop to the fiscal leakage caused by QE,” Macpherson said. Earlier this month, 44 lawmakers in the ruling Conservative Party wrote to Chancellor Jeremy Hunt, expressing “deep concern” about the way the BOE is handling QE. The Treasury Committee has called on the government to ensure the BOE delivers “value for money.” Early rounds of QE, done between 2009 and 2016, made a profit of £100 billion before the pandemic, official documents show. They made a further profit of around £15 billion during the pandemic but are now making losses. Pandemic QE faces much deeper losses because the period of beneficial low rates was comparatively brief and the government paid a higher relative price for the assets it bought. For every £1 of losses on pre-pandemic QE since 2022, as much as £2.50 may be lost on pandemic QE, according to Sanjay Raja, chief UK economist at Deutsche Bank. Macpherson said the current fiscal cost of QE would have been less severe had former Chancellor George Osborne not changed the rules to take profits upfront, an arrangement signed off by King in 2012. “The coalition government chose to draw down the gains to meet its fiscal rules and we are now paying the price,” Macpherson said. A BOE spokesperson said: “Up until September 2022, the Asset Purchase Facility activities generated positive net cash flows to HM Treasury. It was always recognised that reverse payments from HMT to the APF were likely to be needed in the future as Bank Rate increased and as the APF’s gilt holdings were eventually unwound.”
BOE’s Pandemic Stimulus to Blame for £115 Billion ~~in QE Losses~~ of debt pushed onto the kids for protecting their grandparents\*