Latest news with #quantitativeEasing
Yahoo
21 hours ago
- Business
- Yahoo
Buying bonds didn't boost economy, admits Bank of England
The Bank of England's bond-buying experiments in the financial crisis lined investors' pockets rather than boosting the economy, officials have admitted. It created £20bn to buy bonds issued by companies as part of its quantitative easing (QE) programme in the hope of lowering borrowing costs and supporting the economy. But research published by the Bank shows the companies instead channelled the money to shareholders through boosting the stock market. It adds to the criticism surrounding the wider QE scheme, which kicked off in 2009 and ultimately grew to £895bn. Critics argue it worsened inequality and is now draining the public purse, while its supporters see it as a vital aid to the economy at times of crisis. The £20bn of corporate QE created a 'boom' in borrowing by businesses which swooped in to make the most of lower interest bills, according to a working paper from the central bank. 'The fall in corporate bond yields appears to have caused a boom in issuances by non-financial companies in the UK. Between January 2003 and the end of February 2009, these companies issued a total of £180.85bn. 'The additional low-cost funding has not translated into real effects, as the issuing companies chose to use the funds to substitute away from bank borrowing and buy back their shares to boost their prices.' It means they favoured pocketing the cash 'rather than real investment,' said the report, written by the Bank's Mahmoud Fatouh, and academics Simone Giansante and Meryem Duygun. To be eligible for the scheme, the bonds had to come from companies with good credit ratings and significant operations in the UK – which meant even foreign businesses such as Apple and McDonald's. BMW and Volkswagen were among those whose bonds were bought by the Bank, as were storied British companies including tobacco giant Imperial Brands. The corporate bond portfolio was largely sold off by 2023 and the final bonds bought under this part of the scheme matured in 2024. The Bank first launched QE as officials sought new ways to try to support the economy and the financial system in the credit crunch, when the Bank's Monetary Policy Committee had already cut interest rates to 0.5pc. At the time that was a record low, and was considered to be the lowest practical level. After the Brexit vote, the MPC cut the base rate to 0.25pc, and in the pandemic it reached a fresh low of 0.1pc. The biggest chunk of QE was the purchase of government bonds, which totalled £875bn. This was deemed to have boosted the economy and lowered unemployment while supporting inflation, in an era when the pace of prices rises repeatedly fell below the Bank's 2pc target. It also helped push down government borrowing costs, supporting heavy spending at a time when the public purse was under strain. However, the policy was also criticised for boosting asset prices, and so supporting the rich. Cash flow from the QE scheme initially made profits which the Bank passed on to the Treasury. But since interest rates increased sharply from the end of 2021 amid the post-pandemic cost of living crisis, the Treasury has had to transfer funds back to the Bank. The net cumulative loss from the scheme is forecast to rise as high as £150bn in the years to come. Reform UK has called for the Bank to stem these losses by ceasing to pay interest on the reserves held by commercial banks. Andrew Bailey, the Bank's Governor, has cautioned that these payments are an important part of the way in which interest rate decisions made by the MPC pass through to the wider economy. In a letter to Richard Tice, a Reform MP, last week, Mr Bailey said: 'Our implementation of the MPC's chosen level for Bank Rate is anchored by remunerating reserve accounts at that rate. This helps to ensure that the rates at which banks lend to businesses and households – and the rates they pay on customers' savings – move broadly with Bank Rate'. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Telegraph
a day ago
- Business
- Telegraph
Buying bonds didn't boost economy, admits Bank of England
The Bank of England's bond-buying experiments in the financial crisis lined investors' pockets rather than boosting the economy, officials have admitted. It created £20bn to buy bonds issued by companies as part of its quantitative easing (QE) programme in the hope of lowering borrowing costs and supporting the economy. But research published by the Bank shows the companies instead channelled the money to shareholders through boosting the stock market. It adds to the criticism surrounding the wider QE scheme, which kicked off in 2009 and ultimately grew to £895bn. Critics argue it worsened inequality and is now draining the public purse, while its supporters see it as a vital aid to the economy at times of crisis. The £20bn of corporate QE created a 'boom' in borrowing by businesses which swooped in to make the most of lower interest bills, according to a working paper from the central bank. 'The fall in corporate bond yields appears to have caused a boom in issuances by non-financial companies in the UK. Between January 2003 and the end of February 2009, these companies issued a total of £180.85bn. 'The additional low-cost funding has not translated into real effects, as the issuing companies chose to use the funds to substitute away from bank borrowing and buy back their shares to boost their prices.' It means they favoured pocketing the cash 'rather than real investment,' said the report, written by the Bank's Mahmoud Fatouh, and academics Simone Giansante and Meryem Duygun. To be eligible for the scheme, the bonds had to come from companies with good credit ratings and significant operations in the UK – which meant even foreign businesses such as Apple and McDonald's. BMW and Volkswagen were among those whose bonds were bought by the Bank, as were storied British companies including tobacco giant Imperial Brands. The corporate bond portfolio was largely sold off by 2023 and the final bonds bought under this part of the scheme matured in 2024. The Bank first launched QE as officials sought new ways to try to support the economy and the financial system in the credit crunch, when the Bank's Monetary Policy Committee had already cut interest rates to 0.5pc. At the time that was a record low, and was considered to be the lowest practical level. After the Brexit vote, the MPC cut the base rate to 0.25pc, and in the pandemic it reached a fresh low of 0.1pc. The biggest chunk of QE was the purchase of government bonds, which totalled £875bn. This was deemed to have boosted the economy and lowered unemployment while supporting inflation, in an era when the pace of prices rises repeatedly fell below the Bank's 2pc target. It also helped push down government borrowing costs, supporting heavy spending at a time when the public purse was under strain. However, the policy was also criticised for boosting asset prices, and so supporting the rich. Cash flow from the QE scheme initially made profits which the Bank passed on to the Treasury. But since interest rates increased sharply from the end of 2021 amid the post-pandemic cost of living crisis, the Treasury has had to transfer funds back to the Bank. The net cumulative loss from the scheme is forecast to rise as high as £150bn in the years to come. Reform UK has called for the Bank to stem these losses by ceasing to pay interest on the reserves held by commercial banks. Andrew Bailey, the Bank's Governor, has cautioned that these payments are an important part of the way in which interest rate decisions made by the MPC pass through to the wider economy. In a letter to Richard Tice, a Reform MP, last week, Mr Bailey said: 'Our implementation of the MPC's chosen level for Bank Rate is anchored by remunerating reserve accounts at that rate. This helps to ensure that the rates at which banks lend to businesses and households – and the rates they pay on customers' savings – move broadly with Bank Rate'.
Bloomberg
2 days ago
- Business
- Bloomberg
BOE Corporate Bond Buying Failed to Aid Firms, Staff Paper Finds
The Bank of England's £20 billion ($27.3 billion) of corporate bond purchases failed to lower borrowing costs or boost bond issuance in the primary market, according to the central bank's own research. While yields for eligible bonds bought under quantitative easing fell by between 40 to 60 basis points when compared to ineligible debt, the BOE staff working paper admitted that it did little to aid firms' borrowing or increase investment.
Reuters
3 days ago
- Business
- Reuters
Bank of England lends record 74 billion pounds in weekly repo
July 3 (Reuters) - The Bank of England allotted a record 74.225 billion pounds ($101.32 billion) in seven-day funds in its weekly short-term repo operation on Thursday, higher than a previous record of 72.782 billion pounds set last week. The central bank uses its short-term repo operations as a way to provide banks with reserves as it sells down its stockpile of government bonds bought under its quantitative easing programme. ($1 = 0.7325 pounds)
Times
23-06-2025
- Business
- Times
Bank of England governor defends QE policy against Reform claims
Andrew Bailey has hit back against Reform UK's claim that its bond-selling scheme and remuneration of commercial bank reserves were tantamount to a 'systemic misuse of taxpayers' money'. The governor of the Bank of England said in a letter addressed to Richard Tice, Reform UK's deputy leader, that 'the UK will keep the benefit of lower debt costs for considerably longer than other countries' owing to the central bank's quantitative easing (QE) programme. Bailey said that the government 'issued much more long-term debt than other countries when interest rates were low and QE had flattened the yield curve', meaning that it will receive 'a longer-lasting benefit in the form of lower debt costs'. The letter was published on Monday but written last Friday. In a letter to Bailey this month, Tice took aim at the Bank of England's bond-selling plans and remuneration of commercial banks' deposits at the central bank, claiming that the policies would unnecessarily cost the taxpayers tens of billions of pounds. The Bank of England pays interest on commercial banks' deposits, which is determined by the level of bank rate, presently set at 4.25 per cent. This means that, as the central bank raised the base rate to tame aggressive inflation since late 2021, it had offered a higher average interest rate to commercial banks on their deposits compared to the average interest rate it had across its bond portfolio. In addition to this, the central bank is often selling bonds that it bought under QE at a lower price than it paid for them. According to latest estimates from the Bank of England, losses on bond sales will amount to about £150 billion, the cost of which the government covers under an indemnity agreement. Between 2013 and 2022, the Bank of England sent £124 billion of profits earned from its QE programme to the government, Bailey noted in his letter. In the wake of the 2008 financial crisis, central banks launched massive bond-buying packages in a bid to stabilise the global economy, a process known as quantitative easing. The measures were revived and ramped up during the Covid-19 pandemic. By raising demand for bonds, central banks are able to increase their price, which pushes down their yield. These lower yields filter through the rest of the economy, which, in theory, stimulates household spending and business investment, thereby reviving economic growth. Bailey said that Tice had overlooked the potential economic costs if the Bank of England had not enacted QE to aid the economy during these shocks. He said: 'It is easy to forget the severe problems we faced with these shocks. Although the counterfactual is unknowable with any precision, most estimates indicate that QE provided very significant support to the UK economy, protecting both jobs and tax revenues.' The Bank of England owned nearly £900 billion worth of government and corporate bonds at the peak of its QE programme. The central bank has been both selling bonds and allowing them to mature as it gradually shrinks the size of its balance sheet. Under present plans, the Bank of England will either sell or allow bonds to mature at an annual pace of £100 billion. Reform UK was contacted for comment.
