In times of global crisis, central banks watch for signs of panic in the financial markets. On 3 March 2020, when it became clear to investors that Covid-19 posed a significant threat to the global economy, a sudden flight to safety threatened to turn into a full-scale stampede.
With sellers dramatically outnumbering buyers, central banks found themselves riding to the rescue.
In Britain, the Bank of England spent £200bn in its role as buyer of last resort. This week the Bank will attempt to draw a line under the pandemic by becoming a seller again, albeit by simply not repurchasing government bonds it currently holds.
On 7 March, about £30bn of UK gilts will mature and the Bank will allow other investors – probably insurance companies and banks – to buy them, rather than reinvesting the proceeds itself. Officials in Threadneedle Street are also expected to make progress offloading £20bn of loans to big corporations that made up a small slice of the £895bn in quantitative easing it has utilised since 2008.
Within the next few months the value of the QE programme, which was started in response to the 2008 banking crash, will have dropped to £847bn, which is still much higher than its pre-pandemic total, but heading in a direction that appears to show normal, pre-pandemic service from the central bank being resumed.
So far the war in Ukraine and the sanctions imposed on Russian banks and oligarchs is not enough to make Threadneedle Street change course. But Andrew Goodwin, chief UK economist at consultancy Oxford Economics, says the conflict will make the Bank more cautious.
After the March sale, only £9bn of the remaining £847bn will be left still to mature in 2022, which means the Bank will need to actively sell bonds if it
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