Bank of England: Coronavirus

(asked on 29th June 2020) - View Source

Question to the HM Treasury:

To ask Her Majesty's Government what assessment they have made of the Governor of the Bank of England's comments made on 22 June that the Government would have struggled to fund itself if the Bank had not intervened.


Answered by
 Portrait
Lord Agnew of Oulton
This question was answered on 13th July 2020

The Government does not comment on the Bank of England’s decisions. As stated by the Governor, the Bank uses quantitative easing (QE) to meet its own monetary policy objectives – including ensuring the smooth functioning of financial markets and controlling inflation – and buys gilts only from the secondary market. In line with the institutional separation of monetary and fiscal policy, decisions on QE are a matter for the independent Monetary Policy Committee (MPC).

The borrowing undertaken so far this year has been necessary to support the UK economy at this time. The UK is facing significant economic disruption, but the underlying causes of this disruption will pass. That is why we needed to act to ensure these effects do not become permanent. The Government announced unprecedented support for public services, business and workers to protect against the current economic emergency. Not taking these steps would result in the temporary effects of COVID-19 leaving permanent scars in our economy. The OBR have said that the fiscal and monetary support measures “help to limit the adverse impact on potential output and thus future GDP once the crisis has passed”.

The Government’s cost of borrowing is at an all-time low, despite the recent large increase in borrowing to support jobs and the economy. The gilt market is deep and liquid, with a good track record in responding smoothly to increases in gilt supply. The UK Debt Management Office (DMO) has been set a target issuance level of £275bn over the period April-August (inclusive).

Gilt auctions since the beginning of the COVID-19 crisis have performed well; they have all been well-covered and pricing has been efficient. The UK Government remains the benchmark borrower in its own market and currency and gilts remain the key pricing reference for all sterling fixed income markets. Gilts remain as risk-free assets for major investors both internationally and in the UK. Underlying demand for the UK’s debt remains strong, with a well-diversified investor base, and no uncovered auctions since 2009.

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