Based on estimates, the BOE’s yearly loss may surpass £20 billion as early as next year. Furthermore, the UK treasury is set to bail-out the Bank Of England’s £11 billion QE losses.
When you thought UK Prime Minister Liz Truss had her budget under control, it seems like a new, much larger hole has suddenly sprung up and needs to be filled.
The challenging task of fixing a £40 billion hole in the government’s books falls to the incoming UK chancellor, Jeremy Hunt.
However, according to Bloomberg, there are more gaps for the UK Treasury to fill, as it plans to transfer more than £11 billion ($12.4 billion) to the Bank of England this fiscal year to offset predicted losses in its bond-buying program.
The capital transfer was outlined in an update to the Treasury’s “Central Government Supply Estimates” (read below) issued on Tuesday.
The additional injection of £11.175 billion is classified as “assistance to financial institutions – payment to the Bank of England.”
Notably, the suggested new revisions also refer to this payment as “assistance to financial institutions, businesses and individuals.”
Much more agreeable for UK taxpayers?
Based on estimations by Bloomberg, the BOE’s yearly loss may surpass £20 billion as early as next year.
According to Bloomberg, a Treasury spokesperson indicated that “the new Chancellor remains very committed to Bank independence and has full confidence in it.”
Particularly, we are concerned about how much bigger this hole will become now that the Bank of England is getting ready to restart its QT (bond-selling) program.
While the Fed normally remits its operating profits (on interest revenue from bonds on its balance sheet and fees for services rendered) to the US Treasury, the scenario in the UK appears to be different (under Federal law). This money is added to the federal government’s operating budget. In other words, the central bank generates revenue for Uncle Sam.
The Fed recorded a $107.8 billion net income in 2021 and transferred $107.4 billion to the US Treasury.
But the Fed could experience financial loss. In reality, it probably will in 2023. It would be the first operating loss since 1915 if such were the case.
However, unlike in the UK, although the US government will experience a decrease in revenue, which would raise the federal budget deficit, we live in a world where the Fed has the authority to create its own accounting rules. And, under its own accounting principles, any net loss is suddenly transformed into a “deferred asset.”
Perhaps the Bank of England and UK Treasury should take some notes.
Read the document below:
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