UK central bank to buy another £100bn of Govt debt

The UK’s central bank, the Bank of England, on Thursday increased its bond-buying programme by another £100 billion to help the UK economy recover from the coronavirus crisis. 

Initial market reaction to the move suggested investors were hoping for more than the £100 billion increase in quantitative easing.

The move will take the bank’s total stock of such asset purchases to £745 billion. 

However, the central bank slowed the pace of its purchases of debt securities. 

“At its meeting ending on 17 June 2020, the MPC (Monetary Policy Committee) voted unanimously to maintain Bank Rate at 0.1%. 

“The Committee voted unanimously for the Bank of England to continue with the existing programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves. 

“The Committee voted by a majority of 8-1 for the Bank of England to increase the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, by an additional £100 billion, to take the total stock of asset purchases to £745 billion.”

Luke Bartholomew, investment strategist at Aberdeen Standard Investments, said. “This move was widely expected and should be thought of as a holding position before a more comprehensive assessment of the economic outlook and policy stance is delivered at the August Monetary Policy Report. 

“Despite its recent flirting with negative policy rates, we think it is quite unlikely the Bank will go down this path. 

“Instead we expect further QE to be announced in time, along with tweaks to its credit provision facilities, making it easier and cheaper for banks to finance lending to the real economy.”

In its statement, the central bank added: “At this meeting, the MPC judges that a further easing of monetary policy is warranted to meet its statutory objectives. 

“The Committee agreed to increase the target stock of purchased UK government bonds by an additional £100 billion in order to meet the inflation target in the medium term. 

“The Committee expects that programme to be completed, and the total stock of asset purchases to reach £745 billion, around the turn of the year.

“The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2% target. 

“The Committee will keep the asset purchase programme under review.”

Hinesh Patel, portfolio manager at Quilter Investors: “Given the immediate market reaction it appears investors were hoping for a little more than the £100bn increase in quantitative easing that has been announced by the Bank of England. 

“Indeed they may have a point in being disappointed by this announcement given the Federal Reserve and European Central Bank are both guiding the market that they will do whatever it takes to keep the economy afloat.

“But this move is understandable from the Bank of England. 

“It is important these sort of policies move at a steady pace, and with economic data not as severe as previously expected the Bank has given itself some headroom should unemployment turn structural. 

“This decision will quash the notion of a negative policy rate in the UK that has seen much speculation. 

“However, should things go even worse from here, they have left themselves enough bond purchasing capacity in the future to continue soothing markets and the economy as best they can.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.