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