The Bank of England (BOE) has revised its estimate for the loss it anticipates from selling bonds acquired during the financial and Covid-19 crises.
The BOE now anticipates a loss of approximately £85 billion on its bond portfolio, known as the asset purchase facility, over the next decade. Previously, the expected loss was £80 billion, although the estimate has varied, with last year's forecast suggesting losses exceeding £100 billion.
Taxpayers are poised to bear the burden of potential losses, thanks to an insurance agreement established between the Bank and the Treasury when the asset purchase facility program was initiated 15 years ago.
The Bank generated peak cumulative profits of £123.8 billion during the first 15 years of the bond-buying programme, cash that was transferred to the Treasury, helping the public finances.
These profits were orchestrated by the prevailing low-interest rates globally. However, a significant increase in interest rates aimed at addressing inflation has driven down bond prices, suggesting that the Bank is likely to incur losses on its assets in the future.
Additionally, the interest earned on the central bank's bond portfolio is lower than the interest it pays out on commercial bank deposits. Analysts suggest that paying interest on only a portion, rather than the entirety, of commercial banks' deposits could mitigate the public finances' vulnerability to fluctuations in interest rates.
However, implementing such a measure would essentially act as a tax on banks, as they have profited from higher loan charges during a period of escalating borrowing expenses.
