Treasury faces £150bn bill over BoE QE losses

investmentweek.co.uk:

The bonds were bought as part of the bank’s financial stability mandate to reduce the danger of «fire-sale» dynamics.

This was an increase on the previous £100bn projected cost, as higher interest rates since then have escalated the total amount.

The trend of increasing losses contrasted to the prior decade when the central bank produced significant gains, largely thanks to the extended period of quantitative easing and low interest rates it rolled out following the financial crisis.

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The BoE is now attempting to unwind the QE measures, but it has coincided at a time when interest rates and inflation are high and therefore have pushed down bond prices, meaning it could be forced to sell at a loss.

UK interest rates now sit at 5% and governor Andrew Bailey has consistently said the central bank was prepared to increase rates further in a bid to tackle inflation, even if it pushed the UK into a recession.

The BoE said: «Looking ahead, future cash flows are uncertain and highly sensitive to the assumptions used for market interest rates and how quickly the portfolio is unwound.

Experts have forecast rates to hit 6.5% to 7% this year, which would increase pressure on the BoE's gilt pile.

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