BOE’s QT Program Likened to Gold Sales at Bottom of the Market

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UK households, businesses and the government are paying an interest rate penalty because the Bank of England is winding down its multi-billion-pound bond portfolio more aggressively than other central banks, the asset manager Columbia Threadneedle said.

Christopher Mahon, head of dynamic real return at Columbia, said the BOE’s plan to offload its government bonds faster than other major central banks was comparable to former Chancellor of the Exchequer Gordon Brown’s infamous decision to “sell gold at the bottom of the market” from 1999 to 2002.

Using fiscal calculations from the Office for Budget Responsibility, a 0.4% increase in gilt yields would leave losses of about £3 billion annually after five years. Rising interest rates have turned what was once a money-spinner for the government, as the bonds were profitable in a time of low interest rates, into a drain on its finances. The bank now expects losses on the program of around £250 billion over the coming years, leaving taxpayers nursing a net loss of more than £100 billion.

Deputy governor Dave Ramsden has said the BOE “does not take into account financial risk or profit when taking monetary policy decisions, including about the gilt portfolio.”

 

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