The Bank of England faces significant losses on the bonds it purchased to shore up the United Kingdom’s economy.
The U.K. central bank estimates that it will need the British Treasury to backstop £150 billion ($189 billion U.S.) of losses on its asset purchase facility (APF).
The bond purchase program ran from 2009 to 2022 and was designed to improve financing conditions for companies hit by the 2008 financial crisis and the Covid-19 pandemic.
In total, the Bank of England bought £895 billion worth of bonds while interest rates were historically low.
However, the central bank started to unwind its bond holdings late last year, initially through halting reinvestments of maturing assets and then by actively selling the bonds at a projected pace of £80 billion per year.
The Bank of England says its early profits of £123.8 billion has now become losses as interest rates have risen sharply over the past 18 months.
Higher interest rates have driven down the value of the government bonds and the Bank of England is now selling them at a loss.
The situation is expected to worsen in coming months as the British central bank is expected to raise interest rates even higher to lower inflation that is currently running at 6.80% in the U.K., among the highest levels in the developed world.
