The Bank of England (BoE), the central bank of the United Kingdom of Great Britain and Northern Ireland, is currently facing large losses on bonds that the central bank bought to support the British economy. According to Deutsche Bank analysts, current estimates of the amount of the loss are likely to be much higher than expected. At the end of July this year, 2023, central bankers at the Bank of England estimated that solving the problem would require the UK Treasury to cover £150 billion ($189 billion) in losses from its asset purchase facility (AFP). Deutsche Bank Senior Economist Mr Sanjay Raja said the cost to the Treasury of compensating the AFP losses over the next two fiscal years would be about £23 billion (GBP) higher than the March 2023 Overseas Business Reports (OBR) forecast. of the economy in the form of bond purchases ran from 2009 to 2022 and was designed to improve financing conditions for companies affected by the 2008 financial crisis. The BoE has accumulated bond holdings totaling £895 billion over this period, which especially prevalent during periods when interest rates were historically low.
In response, not only to this latest development regarding the loss-making nature of the central bank BoE, these facts have not had a significant effect for the time being in relation to the exchange value of the British pound (GBP), which is currently strengthening against most major world currencies, especially against the US dollar (USD) and even against the single European currency euro (/EUR). Currently, during the European afternoon of August 30, 2023, at approximately 13:31 CET, the British pound (GBP) traded against the US dollar (USD) at a mutual exchange rate of USD 1.266 per GBP as part of the forex operations of the foreign exchange market with the GBP gaining +0.16% against the USD on the day to date. Likewise, the British pound strengthened against the single European currency, the euro (EUR), when the EUR/GBP currency pair traded at a rate of 0.86 GBP per EUR on the day and time indicated, with the EUR down by -0.047% against the GBP for the day to date. This mutual exchange rate was achieved in a situation where the so-called global currency pair EUR/USD was trading at 1.088 USD per EUR with a daily growth of EUR + 0.06% against the USD.
This year’s July 2023 public finance figures showed that the Treasury of the United Kingdom of Great Britain and Northern Ireland transferred £14.3 billion to the Bank of England (BoE) over the past month to cover losses from its quantitative easing program release. This volume of funds thus released is £5.4 billion higher than what was originally forecast by the independent Office for Budget Responsibility (OBR) in March this year 2023. Deutsche Bank’s Chief Economist Mr. Sanjay Raja commented on the matter, among other things, that a total of £30 billion has already been moved from the Treasury to the central bank so it is safe to assume that compensation is likely to continue to significantly exceed government forecasts. “The good news is that with much stronger government revenue, due to a stronger economy in the last few months, total borrowing is likely to continue to ‘undershoot’ the OBR’s forecasts heading into the Autumn Fiscal Statement, masking the rising costs of the APF bank. “
