BoE’s Bailey confirms decrease in bond purchase cap

Bank of England Governor Andrew Bailey said on Friday that the maximum size of the BoE’s Asset Purchase Facility holdings can now be lowered to 886 billion pounds from 966 billion pounds, after the conclusion of emergency purchases last month.

The BoE bought 19 billion pounds of long-dated and index-linked government bonds last month to halt a fire sale of assets by pension funds following former prime minister Liz Truss’s mini-budget.

Britain’s finance ministry – which indemnifies the BoE against losses on its bond portfolio – approved a 100 billion pounds increase in the maximum size of the APF to 966 billion pounds, in case greater purchases were needed.

Bailey, in a letter to finance minister Jeremy Hunt on Friday, said this could now be lowered to 80 billion pounds and would fall further as the BoE unwound its quantitative easing purchases.

The BoE also aimed to sell the 19 billion pounds of long-dated and index-linked gilts in a “timely but orderly” way, Bailey wrote.

“Orderly disposal includes not selling gilts into febrile markets whereby the Bank’s sales might increase the level of dysfunction, such that value for money cannot be achieved,” he said.