Losses incurred by the Bank of England from bonds purchased to strengthen the British economy after the financial crisis will be “significantly higher than anticipated until mid-decade,” according to Deutsche Bank.

By the end of July, the central bank estimated that the UK Treasury might need to cover losses of £150 billion ($189 billion) at its Asset Purchase Facility (APF).

The program ran from 2009 to 2022, aiming to improve financing conditions for companies affected by the 2008 financial crisis.

As part of this initiative, the Bank of England bought bonds totaling £895 billion while interest rates were historically low.

However, the central bank began unwinding this position late last year, initially by ceasing reinvestments into maturing assets, and subsequently actively selling bonds at an anticipated pace of £80 billion annually from October 2022.

Both the Treasury and the Bank of England were aware when the APF was implemented that its initial gains (£123.8 billion as of September last year) would turn into losses as interest rates increased.

Nevertheless, the pace at which the central bank had to tighten monetary policy to manage inflation has meant that costs escalated faster than expected.

Higher rates squeezed the value of purchased government bonds, known as gilts, just as the Bank of England began selling them at a loss.

Public finance data for July revealed that during that month, the Treasury transferred £14.3 billion to the Bank of England to cover losses from its quantitative easing program. This amount is £5.4 billion higher than the figure predicted by the independent Office for Budget Responsibility (OBR) in March.

Source: CNBC.com