Economists are urging Chancellor John Healey to reconsider the Bank of England’s bond-selling programme, which has already cost the exchequer billions. As the Bank’s monetary policy committee prepares to meet, the focus is not only on interest rates but also on the pace of selling government bonds, known as gilts. This bond-selling, part of a strategy to combat inflation, is now seen as detrimental, as it crystallises losses for the government while increasing market supply and pushing up borrowing costs.
The yield on 10-year gilts has surged to its highest level since 2007, reflecting the financial turmoil exacerbated by global events. The Bank’s aggressive approach to quantitative tightening has led to significant losses, with estimates suggesting a potential £120 billion hit to the exchequer if current trends continue. Critics argue that the Bank’s policies are unsustainable and are placing undue pressure on the Treasury, especially with Healey’s first budget approaching.
Former Bank officials and economists are calling for a halt to active bond sales, citing that the costs of the current strategy far exceed those of similar policies in other economies. The Bank’s governor has defended the approach, but there are growing concerns about the long-term implications for government finances and public services.
As the situation develops, the Chancellor faces a critical decision on how to balance the Bank’s independence with the need to protect the Treasury from escalating costs. The outcome of this meeting could have lasting effects on the UK economy and public spending priorities in the coming years.
Source: The Guardian
