Update on Recent Bank of England Asset Purchases

Kwasi Kwarteng Excerpts

Wednesday 12th October 2022 Written Statements

[The Chancellor of the Exchequer (Kwasi Kwarteng)]

The Bank of England decided to carry out temporary purchases of long-dated UK Government bonds (gilts) from 28 September through the asset purchase facility (APF) on whatever scale is necessary to restore orderly conditions. These interventions will be strictly time limited, with auctions taking place until 14 October.

I have therefore authorised an increase in the total size of the APF by £100 billion. This will bring the maximum total size of the APF from £866 to £966 billion.

On 11 October, the Bank decided that that it will widen the scope of its daily gilt purchase operations to also include purchases of index-linked gilts. This was designed to act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity, the purchasing of index-linked gilts was already covered by the existing indemnity for the APF.

The amendments to the APF that could affect the allocation of credit and pose risks to the Exchequer have been discussed with Treasury officials. The risk control framework for the APF previously agreed with the Treasury will remain in place, and HM Treasury will keep monitoring risks to public funds from the facility through regular risk oversight meetings and enhanced information sharing with the Bank.

The Government will continue to indemnify the Bank and the APF from any losses arising out of, or in connection with, the facility. If the liability is realised, provision for any payment will be sought through the normal supply procedure.

A full departmental minute has been laid in the House of Commons providing more detail on this contingent liability.

[HCWS319]