The Bank of England, like other Central Banks, is a weird entity, in that it can, if it wants create money. We saw that through the QE programmes, through which it acquired large portfolios of Government Bonds – known as guilts.
The program ran from 2009 to 2022 and was designed to improve financing conditions for companies hit by the 2008 financial crisis. It saw the BOE accrue £895 billion worth of bond holdings while interest rates were historically low.
However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. Higher rates have driven down the value of the purchased government bonds — known as gilts — just as the BOE began selling them at a loss because bond yields have changed significantly, rising fast as prices fall (as yields and prices work in opposite directions).
The central bank began unwinding that position late last year, initially through halting reinvestments of maturing assets and then by actively selling the bonds at a projected pace of £80 billion per year from October 2022. Both the Treasury and the BOE knew when the APF was implemented that its early profits (£123.8 billion as of September last year) would become losses as interest rates rose.
Now according to Deutsche Bank, the Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”
So should we worry? Well, the Bank of England has a pretty special arrangement with the UK government. Since 2009 it has promised the central bank that it would make good any losses it might suffer from QE, especially after it started sweeping any QE profits back to the Treasury in 2012.
Digital Finance Analytics (DFA) Blog
Is The Bank Of England Broke - And Does It Matter?
UK inflation remained higher than expected last month as the cost of travel and holidays climbed, adding to the case for the Bank of England to raise interest rates again, this despite an expected fall in energy prices.
The Consumer Prices Index rose 6.8% in July, exceeding the 6.7% rate expected by economists, the Office for National Statistics said Wednesday. It was the fifth time in six months the figures surprised on the upside. Inflation remains more than triple the BOE’s 2% target.
While falling energy and food price inflation brought the headline rate down from 7.9% in June, the cost of services accelerated by 0.2 percentage points to 7.4%, matching highs touched in May and in 1992.
http://www.martinnorth.com/
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Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
UK Inflation Still Not Beaten, As Wages Spiral (For Some...)
UK inflation remained higher than expected last month as the cost of travel and holidays climbed, adding to the case for the Bank of England to raise interest rates again, this despite an expected fall in energy prices.
The Consumer Prices Index rose 6.8% in July, exceeding the 6.7% rate expected by economists, the Office for National Statistics said Wednesday. It was the fifth time in six months the figures surprised on the upside. Inflation remains more than triple the BOE’s 2% target.
While falling energy and food price inflation brought the headline rate down from 7.9% in June, the cost of services accelerated by 0.2 percentage points to 7.4%, matching highs touched in May and in 1992.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
The Bank of England lifted rates again today by 0.25%. They also signalled rates would be higher for longer, and that they would be data driven (similar message to the FED and ECB).
http://www.martinnorth.com/
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Ahead of the Bank of England cash rate decision tomorrow, the latest CPI numbers were hotter than expected, with core CPI higher. As a result, expectations for rate hikes have taken off, with a prospective terminal rate of around 6%, the highest in years.
Added to the growing defecit and the prospect of a recession, and it seems the UK is at the worst end of the inflation drama!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The Bank of England lifted the cash rate by 0.25%, the 12th rise – to 4.5%. They held a press conference of over an hour, and mindful of the recommendations relating to the RBA review highlighting weakness in communication, I picked out some highlights from the UK session.
This includes the basic rationale for the rate rise, a discussion about the mortgage cliff, what caused inflation in the first place, and the impact on households. It was frankly a more grown up discussion – even if they still anchor inflation to supply chain shocks and energy issues. But their comments on Huw Pill recent comments were also significant.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The Bank of England lifted the cash rate by 0.25%, the 12th rise – to 4.5%. They held a press conference of over an hour, and mindful of the recommendations relating to the RBA review highlighting weakness in communication, I picked out some highlights from the UK session.
This includes the basic rationale for the rate rise, a discussion about the mortgage cliff, what caused inflation in the first place, and the impact on households. It was frankly a more grown up discussion – even if they still anchor inflation to supply chain shocks and energy issues. But their comments on Huw Pill recent comments were also significant.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The Chief Economist At The Bank of England Huw Pill this week argued that there was a need for restraint to contain inflation. He got significant reaction on socials.
And there is an argument that both Unions and Corporates have a vested interest in bidding wages and prices higher – its their job.
But we parse out this argument and highlight the missing actor which was responsible for creating inflation in the first place, and yet now appears to be blaming everyone else.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The Chief Economist at The Bank of England Huw Pill this week argued that there was a need for restraint to contain inflation. He got significant reaction on socials.
And there is an argument that both Unions and Corporates have a vested interest in bidding wages and prices higher – its their job.
But we parse out this argument and highlight the missing actor which was responsible for creating inflation in the first place, and yet now appears to be blaming everyone else.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The latest UK inflation statistics surprised to the upside, baking in more rate rises. Again, the pattern is different from what markets expected, so they repriced future rate expectations.
More evidence against those hoping for rate cuts anytime soon.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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