Sir John Redwood has urged the Bank of England (BoE) to stop selling bonds at “large losses” after it emerged taxpayers will foot a £150billion for the sale of bonds bought to prop up the economy in the financial crisis. The staggering loss will be covered by HM Treasury and force the Government to further tighten the purse strings in the run-up to the next General Election.
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A quantitative easing (QE) programme launched in 2009 has seen the BoE buy £875billion worth of Government bonds, but higher interest rates have seen the value of the bonds the bank owns tank while increasing the interest it pays the commercial banks buying them.
The latest estimates from the BoE show net transfers from the Treasury could amount to more than £150billion by 2033 to cover losses if interest rates take the path priced into markets at the end of June. Interest rates are expected to peak at six percent after shooting upwards from historic lows.
The Bank expects the Government will pay about £40billion a year in 2023, 2024 and 2025, which is around £10billion a year more than estimated in April.
Leading Brexiteer Sir John told Express.co.uk: “The Bank should not continue selling bonds it owns at large losses in the market, driving mortgage rates up. It should allow the bond holdings to decline as the bonds reach their repayment date, reducing the capital losses.
“The Bank was wrong to buy so many bonds at very high prices in 2021, fuelling the inflation we now suffer.”
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Industry experts have accused the BoE and Government of mismanaging the British economy, describing QE as a “failed policy”.
Financial adviser Samuel Mather-Holgate from Mather and Murray Financial said: “QE is yet another failed policy by the central banks. It [has] a lot to do with the rapid rise in inflation as well. With so much extra money sloshing around the economy… this pushes prices up.
“The Bank could easily have used the reverse, quantitative tightening, to deal with inflation, but instead chose a more painful route – hiking mortgage rates for millions of middle income families. It shows that [when] stimulus is needed they help the rich, but when restraint is the order of the day, the pain lands on normal people.”
Mortgage expert Lewis Shaw, from Shaw Financial Services, said the Government and Bank of England’s management of the UK economy was “dire” and has been for years.
He added: “This is yet another calamity that could have been avoided if we had people who actually understand economics as it happens in the real world instead of thinking that all that matters is what their textbooks and models say.”
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Stuart Crispe, founder of London-based finance directory Sunny Avenue, said: “Taxpayers are always left to clear up the mess, and the idea that we must simply accept paying taxes because ‘that’s just how it is’ doesn’t make much sense to me.
“It means regular people could end up paying for mistakes made by the central banks that we are supposed to trust – and many feel they have failed us. It doesn’t feel fair, especially in already difficult times.”
David Robinson, co-Founder of Wildcat Law, said: “Globally central banks have pulled off an amazing ’emperor’s new clothes’ routine with ‘quantitive easing’. They have convinced nearly everyone that this was not what it actually was – namely printing money.
“Unfortunately, this economic sleight of hand can only last for so long and now we are starting to pay the true cost. This is part of that bill, alongside inflation.”
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