The Bank of England's Bond Purchases Lead to Major Losses and Diminish Tax Cut Hopes
The Bank of England is expected to face significantly higher losses on its bond purchases than previously projected, with Deutsche Bank estimating that the losses will continue to rise until the middle of the decade. The central bank's asset purchase facility (APF), implemented to support the UK economy after the financial crisis, has resulted in £150 billion ($189 billion) of losses, which will be backstopped by the UK Treasury. The costs have escalated due to the central bank's need to tighten monetary policy to combat inflation, resulting in a decline in the value of the purchased government bonds. The Treasury has already transferred £30 billion to the Bank of England, and the indemnities are expected to exceed government forecasts. This could impact the government's ability to make spending or tax-cutting pledges ahead of the 2024 general election.