The Bank of England is facing a £240bn shortfall — it looks like someone misplaced the world’s most expensive set of keys!

Disregard Rachel Reeves’ assertion regarding a £22 billion financial gap. After carefully examining the Office for Budget Responsibility (OBR) data, I have uncovered that the Bank of England is grappling with a staggering £240 billion deficit. This significant discrepancy highlights the severity of the economic challenges facing the institution.

I uncover the Bank’s shocking losses and wonder if Reeves is too busy binge-watching cat videos to step in.

The Bank of England is well on its way to losing the country close to a quarter of a trillion pounds, according to the latest official data from the Office of National Statistics and the Office for Budget Responsibility,

This staggering amount is attributed to a combination of quantitative easing measures, rising interest payments on government debt, and efforts to stabilize the economy in the wake of global financial pressures. Experts warn that such costs could have long-term implications for public spending, taxation, and economic growth. Policymakers are now under increasing pressure to balance the need for fiscal responsibility with supporting the nation’s recovery and addressing ongoing economic challenges.

The latest OBR figures overshadow the Chancellor’s claimed “£22bn black hole” — why the silence? Critics argue that the disparity between the figures raises questions about the accuracy of the government’s fiscal narrative. Is this a case of misleading rhetoric, or is there a deeper strategy at play? The lack of clarity leaves room for speculation, with some suggesting that the black hole claim may have been exaggerated to justify upcoming policy decisions. Meanwhile, calls for greater transparency grow louder as the public demands answers. Will the Chancellor address these discrepancies, or will the silence persist?

The Bank has suffered significant financial setbacks, accumulating £73 billion in losses over the course of the past two years.

These losses stemmed from the central bank’s quantitative easing program, which involved purchasing government bonds to stabilize the economy during times of financial stress. As interest rates began to rise sharply in response to inflationary pressures, the value of these bonds decreased significantly, leading to mounting financial strain on the facility. This situation has sparked debates about the long-term implications of such monetary policies and their impact on public finances.

This sharp turnaround has raised concerns among analysts, as it marks a significant deviation from the Bank’s earlier performance. The escalating losses are attributed to a combination of rising interest rates and unfavourable market conditions, which have eroded the value of its bond holdings. Experts warn that if this trend persists, it could strain the Bank’s financial stability and necessitate further interventions to mitigate the impact.

This discrepancy raises significant questions about the validity of the “£22 billion black hole” narrative, as well as the broader fiscal management strategies employed. Critics argue that without transparent data to back up such claims, it becomes challenging to assess the true state of the nation’s finances or hold policymakers accountable for their decisions.

The data reveals a significant potential for losses, particularly as interest rates fluctuate and market conditions remain volatile. These projections underscore the critical need for careful management and strategic planning to mitigate financial risks associated with these operations. Moreover, the broader economic implications of such outcomes could influence fiscal policies and public sector borrowing requirements in the years to come.

The analysis indicates that the Bank is now projected to incur a staggering loss of approximately £240 billion — nearly a quarter of a trillion pounds.

This unprecedented financial setback highlights significant challenges in the Bank’s operations and strategy, raising concerns about its long-term stability and prompting urgent calls for a reevaluation of its risk management practices.

The Bank of England’s latest losses from bond trading activities reveal valuable insights in two reports from the Office for Budget Responsibility, one from March and an update in October, reminding us of the lessons that come from navigating challenges.

“Since Bank Rate and gilt yields rose from their record lows in the second half of 2022, the Bank of England’s Asset Purchase Facility (APF) has gone from making a profit to making a loss. Having transferred £123.9 billion of cash profits to the Treasury between January 2013 and October 2022, a total of £49.4 billion has been transferred from the Treasury to cover losses incurred by the APF since then. Our latest estimate of the lifetime cost of the APF is a net loss of £104.2 billion.”

• OBR report March 2024

In October, I have the following update — don’t worry, it’s not pumpkin spice flavoured (I checked)

“Contributions from the APF to PSND have risen by an average of £1.9 billion a year compared to our March forecast due to a higher forecast for Bank Rate and gilt yields, and now add a cumulative £78.1 billion to PSND across the forecast period. The higher expectations for Bank Rate and gilt yields, combined with the latest runoff path, imply a cumulative net lifetime loss of £115.7 billion, which is £11.5 billion higher than we estimated in our March 2024 Economic and fiscal outlook.”

- OBR report Oct 2024

The Bank is bracing for a colossal £240bn loss since October 2022 — going from a £124bn profit to a £116bn deficit. It’s like finding out your winning lottery ticket was just a grocery receipt all along.

Why This Is a Loss for the Entire UK

This setup effectively safeguards the Bank of England’s financial stability, allowing it to focus on its primary mandate of maintaining monetary and financial stability. However, the transfer of losses to the Treasury highlights the interconnectedness of public institutions and the broader taxpayer responsibility. While this mechanism ensures the Bank remains solvent, it also underscores the importance of prudent fiscal and monetary policies to minimize potential burdens on the public.

These losses not only strain the economy but also limit the government’s ability to invest in critical areas like healthcare, education, and infrastructure, creating a ripple effect that hinders long-term growth and prosperity

The prominent question arising from my report is, “Chancellor, why have you not raised concerns about this staggering £240 billion ‘black hole’ and taken proactive measures to address it?” It’s important to note, Ms Reeves, that even when focusing solely on the £73 billion in losses that the Bank of England has experienced over the past two years, this figure is significantly greater — over three times — than the £22 billion deficit that you continuously highlight in your discussions. This discrepancy raises serious questions about the prioritization of financial accountability and transparency within our economic policies.

The Bank of England finds itself facing a staggering potential loss of £240 billion in taxpayers’ money, a figure that is truly remarkable and alarming. In light of the claims made by Rachel Reeves regarding the dire state of the nation’s finances left by the previous government, one would anticipate that tackling this substantial financial shortfall would be at the forefront of Ms. Reeves’ agenda. However, it seems that this critical issue has not received the attention it deserves from her.

“To 2CV or not to 2CV, that is the drive… but hey, at least it’s not a flat tyre decision!”

After wading through endless edits to Rachel Reeves’ CV and the accompanying articles, one begins to wonder if her qualifications for Chancellor of the Exchequer are hidden in invisible ink.
What we do know for sure is that she once worked at the Bank of England — so at least she knows where the money is kept.

The air is heavy with a mix of metallic tang and the faint dampness of the underground chambers. Security measures are unparalleled, with biometric scanners, reinforced steel doors, and round-the-clock surveillance ensuring the treasures remain untouched. The gold bars, each weighing approximately 12.4 kilograms, gleam under the dim, artificial lighting, a testament to centuries of wealth and power. The atmosphere is one of both awe and secrecy, where every corner whispers tales of economic stability and the safeguarding of national assets.

This raises broader concerns about leadership and Reeves and responsibility at the highest levels. Is there a reluctance to confront uncomfortable truths or a lack of understanding of the deeper economic implications? The public deserves transparency and decisive action, particularly when the stakes involve billions of taxpayer funds. Without accountability, trust in the system continues to erode, leaving citizens questioning whether their interests are truly being safeguarded.

The Rt Hon Sir John Redwood, former Secretary of State had this to say.

I assume the intelligent and financially literate, well-paid experts who presided over bank policy during the QE years all understood that they were deliberately buying bonds at very inflated prices with a view to making losses.

They often bought these bonds at prices higher than the repayment value — buying above par, as they say. If they bought a bond at £120 per nominal £100 because they wanted long rates materially lower than when the bond had been issued by the government, they would expect a loss of £20 when it finally matured.

They have now decided they want to sell some of these bonds below the repayment level, increasing the losses by more. There are various official calculations of the possible losses, with the UK sure to lose more than £100 billion on bond holdings and the ECB and Fed proportionately more, given the much larger sizes of their portfolios. It is a curious thing to have wanted to do.

If a central bank intervenes in the foreign exchange market, it is usually because they think their national currency has fallen too far. By buying it they both hope to send it up a bit and make a profit. Yet here we have a clear case of intervening wanting to lose money, knowing that one day they would need to put rates up, and this would send the bonds they bought plunging in value.

The BoE was so worried about the likelihood of large losses trashing the balance sheet that it made taxpayers and the Treasury agree to repay every pound they lost to preserve the bank’s capital.

The Fed has the best but most cavalier reply, saying they do not worry if they lose a lot of money as they live with a balance sheet that simply records the losses and lets them trade with negative capital. The ECB is taking fewer large losses prematurely and is looking to the national central banks to make up much of the damage when it has used up its own provisions.

It is not helpful for central banks that they will have to report a succession of large losses and will need to answer questions about the adequacy of their capital and how it is to be rebuilt. It looks as if the central banks had not thought through all the presentational issues with these losses and underestimated the impact on the real economy of accelerating disposals with a view to increasing the losses needlessly.

- The Rt Hon Sir John Redwood, former Secretary of State, IEA, Sept 2024