In early February, to almost no fanfare, the Treasury Committee released an extensive report on the Bank of England’s quantitative tightening (QT) programme. QT was the Bank’s attempt to reverse the quantitative easing (QE) programmes it had pursued intermittently over the last 15 years. QT aimed at removing some of the money that the Bank had pumped into the broader banking system by selling some of the large quantities of assets that they had accumulated throughout QE. While the Treasury Committee’s report was nominally about QT, it also had to consider the QE programme itself and its long-term effects.
The report found that the unwinding of QE was proving extremely costly and that these costs were being borne by the Treasury – and, through the Treasury, by the taxpayer. The Committee estimated that “annual losses in each of 2023 and 2024 will amount to £40bn, eroding the cumulative £124bn positive cash flow that was generated up until September 2022”.
In only two years, 65% of the gains that the assets had accumulated in the previous 13 years would be lost. At this rate, all the gains would be wiped out by 2025 and thereafter the programme would be incurring major losses. And all of this is based on the rosy assumption that inflation does not make a comeback in the coming months and years. If it does, the losses will be even larger.
The Committee expressed concern about this situation: “Notwithstanding the operational independence of the monetary policy… it strikes us as highly anomalous that decisions have been and are being taken concerning
