Government borrowing costs are likely to rise when the Bank of England starts unwinding quantitative easing, the chief executive of the Debt Management Office has said in comments that raise questions about the sustainability of Britain’s high national debt.
Sir Robert Stheeman told MPs that once the Bank began selling the gilts it held through QE, “then clearly in terms of the overall market you would have two sellers” and “that probably would have an impact on yields”.
Well, yes, if the BoE’s stock of QE gilts is sold into the market then interest rates will rise.
The usefulness of this information being. We can’t claim that the market wants more gilts – because, look, see, low price! – when the BoE owns £725 billion of them. A distorted market price isn’t a useful guide to supply and demand, d’ye see?
Is this true?
UK Government almost went bust
“Tucked away in yesterday’s newspapers and barely reported by the broadcast media was the disclosure by the new Governor of the Bank of England, Andrew Bailey, that the Government would effectively have gone bust during the stock market meltdown in March if it hadn’t been rescued by the Bank.
Its decision to pump £200 billion into the economy via quantitative easing — the biggest single cash injection in its history — averted a liquidity crisis for the Government. Pretty scary stuff.
Alistair Darling, who was Chancellor during the Great Recession of 2008, later said that people were only two hours away from being unable to withdraw money from cashpoints.
That was bad enough. A Government close to insolvency sounds even worse.
Neither Boris Johnson nor Rishi Sunak, the Chancellor, has levelled with us about the terrifying state of the nation’s finances”