Bank of England gilt sales set to resume as UK lending drops

First asset sales from the bank's quantitative easing asset portfolio will start this Tuesday

The British central bank has about £838 billion worth of UK government bonds in its Asset Purchase Facility after a more than a decade of buying to stimulate the economy. Getty
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The Bank of England on Monday confirmed that its first asset sales from the quantitative easing (QE) asset portfolio will start this Tuesday but delayed the fourth auction to avoid a clash with the UK government’s fiscal statement.

The British central bank, which has about £838 billion ($965.8bn) of UK government bonds in its Asset Purchase Facility after a more than a decade of buying to stimulate the economy, said its first sales will happen at 2.15pm in London on November 1 and offer £750 million of short-dated gilts.

The second sale was scheduled for November 17, the date Chancellor of the Exchequer, Jeremy Hunt, picked to deliver his Autumn statement.

That will include detailed forecasts for the public finances and probably an updated schedule of sales from the Debt Management Office. The BoE will hold an auction on November 24 instead.

The BoE released a statement on Thursday detailing the assets it will sell and timing of the operations.

The UK central bank will hold auctions from its asset purchase facility on November 1, November 7, November 14, November 24, November 28, December 5 and December 8.

Lending squeeze

The QE timetable release comes days after economists predicted the BoE would institute the biggest interest rate increase in more than three decades — the eighth consecutive increase in rates by the central bank and the biggest since 1989.

With debt becoming even more prohibitive and the UK facing an increasingly choppy economic future, BoE data released on Monday showed lending to British consumers rose last month by less than expected while the number of mortgages approved by British lenders eased back.

The BoE said net unsecured consumer credit rose by £745m in September, the smallest monthly increase since December 2021, following a £1.215bn increase in August.

A Reuters poll of economists had pointed to net lending of slightly under £1bn.

Mortgage approvals totalled 66,789 last month, down from 74,422 in August, the BoE said.

“September's money and credit figures point to further signs that consumers have been become more cautious in response to the weakening economic outlook,” said Ashley Webb, UK economist at consultancy Capital Economics.

The BoE figures showed a huge jump in the money supply, which on the M4 measure rose by 2.1 per cent in September alone.

The last time there was a bigger increase was in March 2020, when financial market turmoil early in the Covid-19 pandemic led to a squeeze on money market funds that had to sell assets such as government bonds and Treasury bills for cash.

September's jump probably reflected a fire-sale of pension fund assets to meet collateral calls in the wake of the ill-fated September 23 economic growth plan from the government of former UK prime minister Liz Truss.

The sub-category of M4, which covers companies such as pension funds and life assurance companies, jumped by a record £67.8bn in September, more than double the previous record.

Updated: October 31, 2022, 12:07 PM