Bank of England bond sales blamed for cash shortage

The Bank of England’s vast sale of government bonds is causing a shortage of cash in corners of the money markets and may need to end, investors have warned. Over the past two years, the BoE has shrunk its balance sheet from nearly £1tn to about £760bn largely by reducing its holdings of government debt it bought under numerous rounds of quantitative easing stimulus. Unlike other central banks, the BoE is not just waiting for bonds to mature but actively selling them.

“It was not supposed to happen” so soon in the process of winding down the BoE’s gilt portfolio, he added. BoE governor Andrew Bailey said last week that the take-up of the repo facility was “encouraging” and that he expects a “significant increase” in its usage. His estimate for the “steady state” of the balance sheet is between £345bn and £490bn.

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