EXCLUSIVE : Forget the Rachel Reeves "£22bn black hole"
The Bank of England is heading for a £240bn black hole, says our analysis of OBR data

Facts4EU reveals the scandalous losses at the Bank and asks why Reeves hasn’t stepped in

Montage © Facts4EU.Org 2024

Latest figures from the OBR dwarf the Chancellor’s “£22bn black hole” – why is she so quiet?

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, analysed by the Facts4EU.Org think-tank.

In our report on Tuesday (26 Nov 2024) into the growing size of the UK’s net public debt, we showed how the UK’s proportion of net public debt to GDP (excluding banks) has risen to 97.5%.

Today we bring readers even more shocking news, unreported so far in the mainstream media. Our report today reveals the calamitous losses being incurred by the Bank of England in its activities in the bond markets since 2022.

Brexit Facts4EU.Org Summary

Losses SO FAR incurred on the ‘Asset Purchase Facility’ of the Bank of England

Cumulative, Oct 2022-Oct 2024, in £'s billions

[Sources : The Office for National Statistics and the Office for Budget Responsibility, Oct/Nov 2024.]

The Bank's £73bn of losses in the last two years alone

In the final quarter of 2022, the Bank of England started racking up significant losses in what is called the "Asset Purchase Facility" - a subsidiary which is 100% underwritten by HM Treasury and therefore by the country.

These losses so far amount to £73.1bn and are now ramping up further still. Prior to this, the Bank had mostly been making a profit on these activities in the bond markets, as would be expected.

The £73 billions of losses already incurred since October 2022 total more than three times the amount of the alleged "£22bn black hole" which Rachel Reeves says she inherited, but which neither the Treasury nor the OBR has been able to back up with any figures.

Unfortunately it gets worse, according to the Office for Budget Responsibility

The Facts4EU team have analysed the lifecycle numbers from the OBR (Office for Budget Responsibility) for the likely outcome of the Bank of England’s bond trading activities, from bond issuance to redemption.

The results of this analysis show that the Bank is now predicted to make a thumping loss of c. £240bn. This is getting on for a quarter of a TRILLION pounds.

Brexit Facts4EU.Org Summary

Bank of England’s actual and predicted cumulative losses from 2022 onwards

Below is the picture for the remaining lifecycle of this BoE facility

[ Source : Office for Budget Responsibility, Oct 2024. ]

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Given the astonishing scale of what we are reporting today, we turned to one of the pre-eminent figures on such matters : the Rt Hon Sir John Redwood. It was Sir John who wrote a 32-page paper for the Institute for Economic Affairs in September, which started our journey investigating this scandal.

This is the man about whom Boris Johnson wrote in his recently-published memoir: “He always got the economy right.” It is also fair to say that Sir John led the charge in Parliament on this matter, before stepping down as an MP at the last election.

The Rt Hon Sir John Redwood, former Secretary of State

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 its 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

The information about the Bank of England’s latest losses from its bond trading activities is contained in two reports from the Office for Budget Responsibility dated March and then updated in October.

“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

Then in October we have this update :

“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

Put simply, this means the Bank is predicted to lose a staggering £240bn since October 2022, turning a £124bn profit into a £116bn loss.

This is a loss for the UK as a whole – here’s why

Readers who are starting to become alarmed that the mighty Bank of England is now insolvent need not worry. Since 2012-3, the Bank’s Asset Purchasing Facility has been fully underwritten by the taxpayer, via HM Treasury. This means that any losses incurred are passed to the Treasury - and thereby to the country - and do not damage the Bank’s balance sheet.

In effect the Bank’s losses simply add to the national debt, which affects all of us… as well as generations to come.

Observations

Asking the obvious

The obvious question after reading our report above is "Chancellor, why haven't you been complaining about this '£240bn black hole' and doing something to prevent it? After all Ms Reeves, even if you only look at the £73bn of losses already incurred by the Bank of England in the last two years, these amount to well over three times the alleged '£22bn black hole' which you won't stop talking about."

The Bank of England is now well on track to lose £240 billion of taxpayers' money. This is a truly astonishing amount. Given the supposedly disastrous state (according to Rachel Reeves) in which the previous government left the nation's finances, it might have been thought that this loss-making entreprise by the Bank would be one of Ms Reeves' top priorities. It seems not.

Perhaps it will take a report like ours above to be picked up by GB News before the Chancellor will address this.

'2CV, or not 2CV, that is the question'

We've now read so many corrections to Rachel Reeves' CV and articles about this, we are no longer sure what qualifies her to be Chancellor of the Exchequer.

One thing we do know is that she once worked for the Bank of England.

"One careful owner..."

A question to consider is whether her years there were enough for her to "go native". Perhaps this might explain why she hasn't hauled in the Governor of the Bank to demand answers as to why he lost a very large amount of money for the UK taxpayer in the last two years and is intending to lose an obscene amount more money.

By contrast, in the nine years we've known Sir John Redwood, his career history has not changed. When it comes to the economy he is one man we turn to first. His knowledge, experience and razor-sharp intelligence make him possibly “the best Chancellor we never had”.

Unlike so many politicians these days, Sir John is a businessman by background. He set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. In the mid-1980s he was Chief Policy Advisor to Margaret Thatcher. He urged her to begin a great privatisation programme, and then took privatisation around the world as one of its first advocates before being elected to Parliament.

He was soon made a minister, joining the front bench in 1989 as Parliamentary Under-Secretary in the Department of Trade and Industry. He supervised the liberalisation of the telecoms industry in the early 1990s and became Minister for Local Government and Inner Cities after the 1992 General Election. In subsequent years he acted as Shadow Secretary of State for Trade and Industry (1997-1999), Shadow Secretary of State for the Environment, Transport and the Regions (1999-2000) and Shadow Secretary of State for Deregulation (2004-2005). In the 1990s he campaigned widely to keep the pound, and wrote several books and articles explaining why the Euro would be wrong for the UK. He is currently Chief Global Strategist for a leading asset manager.

Not too shabby, we think...

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Brexit Facts4EU.Org, Thurs 28 Nov 2024

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Reader Comments 20

1. Sparky , Thursday, November 28, 2024, 06:07:

This relates to a period that starts with the Liz Truss budget in Sept 22, which John Redwood and other Brexitears supported, and the actions the BOE took. In facts this goes back even further with a number of economic shocks the BOE have reacted to including, Ukraine, Covid and of course Brexit.

2. Sparky , Thursday, November 28, 2024, 06:23:

Interesting that in July 23 Facts4EU described the OBR as "Superfluous" following the Sept 22 Liz Truss budget. So not to disappoint, it is the OBR that are sticking to their 4.0% hit to the UK economy because of Brexit.

3. Ashley Great Britain , Thursday, November 28, 2024, 07:25:

1-2 sparky.
-
So that's all okay then. No BOE fault.
-
NO entity dealing with money should make a loss! Especially the underwriters of a country.
There is something very wrong and sinister with the BOE actions. People running the show there should be highly competent, reliable and on top of their game. Instead we see that they are failing, and fit in nicely with the woke, liberal, left who are also failing on all fronts. The country is in the worst state in living memory, there's something very wrong from the top down.

4. LuxuryBalloon , Thursday, November 28, 2024, 08:17:

Why is it that the more sovereign we are … the more we screw up?

5. Have You Wondered , Thursday, November 28, 2024, 08:30:

.
Is there a bigger picture? You have the BoE - The Fed and the ECB working in concert? Who oversees these organisations and exercise due dilligence? The person in the street cannot move money around without someone asking why (don't even ask about that when digital currency arrives) Indeed, the govt. want banks to examine your affairs. Yet the BoE can loose half a trillion quid of the electorates money !!
.
Oddly enough - This doesn't smell right.
.
I have an idea......Will Starmer, instead of targeting pensioners and those at the bottom end of the ladder - will they look at settling the UK debts by perhaps sequestrating the £850bn hidden in UK offshore accounts until the money is proven to be legal?
.
Remember this when you pay your tax that you are probably subsidising these accounts.
.
Instead they are hounding (fleecing?) those at the bottom end of the economic ladder, the easy pickings, who have virtually no influence?
.
That's £850bn - the best part of a Trillion quid that is possibly illegal and not taxed.
.
Imagine the tax missed on just the £850bn at 20% is £170bn a year?
.
Why not tax at 40% since this money is obviously made by higher rate tax payers?
.
Remember this when you pay your tax that you are probably subsidising these accounts.
.
On another issue - The UK’s top ten richest people are wealthier than the group has ever been, according to The Sunday Times, who recently released their annual Rich List. Their data finds that the cumulative wealth of the top ten billionaires in the UK has grown from £47.77 billion in 2009 to £182 billion in 2022 - an increase of 281 percent.
.
Would it be unreasonable that the minions who earnt that for the billionaires have a similar pay increase.
.
Would that be called 'leveling up'?
.
14 years - Anyone seen the the crumbs fall off the table of the Conservative 'trickle down economics'.
.
Let those who have benefited the most dig the nation out of the financial mire?
.

6. Have You Wondered , Thursday, November 28, 2024, 08:35:

.
4. LuxuryBalloon , "Why is it that the more sovereign we are … the more we screw up?"
.
Ask the ECB and the Fed.
.

7. Catherine , Thursday, November 28, 2024, 09:12:

@Sparky. The BoE were repeatedly told, years before the market upset in Sept 2022, about the huge problem of Liability-Driven Investments and massively over-leveraged positions in the market, particularly held by pension funds. (INcluding their own pension fund.) They were reminded publicly, for example in the Financial Times. What did the BoE do? NOTHING.
@Sparky You're very behind on your reading - the Bank of England recently issued a report admitting that they were heavily to blame for the market upset of Sept 2022. Here is the link to a BoE working paper explaining the LDI and LASH risk and consequences in Sept 2022 (LASH = liquidity after solvency hedging):
https://www.bankofengland.c...

8. Denis Cooper , Thursday, November 28, 2024, 10:58:

Excellent article, but there is a small error insofar as the Treasury indemnified the Bank against losses from the very start of the APF in January 2009.
Daring's letter to King is still available here:
https://webarchive.national...
Note that the APF was supposed to be a temporary expedient, and it was only to purchase high quality private sector assets.
The indemnity was confirmed by Osborne in November 2012.
You may also be interested in this from August 2016:
http://johnredwoodsdiary.co...
"On previous occasions over the past seven years I pointed out that the Treasury had never asked MPs to expressly authorise any episode of QE.
In this case the Treasury has expressly authorised the Bank, through this letter from the Chancellor to the Governor dated August 4th:
http://www.bankofengland.co...
“I am therefore writing to authorise an increase of £70 billion in the amount of assets that the APF is authorised to purchase financed through the issuance of central bank reserves, of which £10 billion can be eligible private sector assets.”
But once again as far as I am aware the Treasury has not asked for express authorisation from MPs, and MPs don’t seem to be worried that it is outside their control ..."

9. Denis Cooper , Thursday, November 28, 2024, 11:16:

Here is an updated link for Hammond's letter to Carney dated August 4 2016:
https://assets.publishing.s...
"I confirm that the government will continue to indemnify the Bank and the APF from any losses arising out of or in connection with the facility.
I am copying this letter to the Chairman of the Treasury Committee and depositing a copy in the libraries of both Houses of Parliament."
But MP's were not asked to approve this or any other tranche of QE.

10. NH , Thursday, November 28, 2024, 11:20:

1. Sparky, "This relates to a period that starts with the Liz Truss budget in Sept 22"
.
As usual you are writing complete ignorant nonsense !
.
The source of the problem started after the banking collapse in 2008 when were were still in the EU. This was continued as a reaction to the "Eurozone Debt Crisis" and continued even further due to problems caused by the "Italia Bank Crisis" in 2016. The BOE failed to understand that they put themselves into a fragile position and were very vulnerable to any external event that may cause inflation. As we now know external events did cause inflation and that's when the major losses occurred.
.
The EU had similar bailout programs but they were much larger. Apart from the Target 2 fiasco they starred their equivalent to the BOEs AFP with their APP in 2009. These various programs continued until they totalled over 5 Trillion Euros. The EU had far higher losses but as they were distributed over the Eurozone ECBs they are far less visible.

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EXCLUSIVE : Forget the Rachel Reeves "£22bn black hole" The Bank of England is heading for a £240bn black hole, says our analysis of OBR data

Facts4EU reveals the scandalous losses at the Bank and asks why Reeves hasn’t stepped in

Latest figures from the OBR dwarf the Chancellor’s “£22bn black hole” – why is she so quiet?

Brexit Facts4EU.Org Summary

The Bank's £73bn of losses in the last two years alone

Unfortunately it gets worse, according to the Office for Budget Responsibility

Brexit Facts4EU.Org Summary

This is a loss for the UK as a whole – here’s why

Observations

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Reader Comments 20

1. Sparky , Thursday, November 28, 2024, 06:07:

2. Sparky , Thursday, November 28, 2024, 06:23:

3. Ashley Great Britain , Thursday, November 28, 2024, 07:25:

4. LuxuryBalloon , Thursday, November 28, 2024, 08:17:

5. Have You Wondered , Thursday, November 28, 2024, 08:30:

6. Have You Wondered , Thursday, November 28, 2024, 08:35:

7. Catherine , Thursday, November 28, 2024, 09:12:

8. Denis Cooper , Thursday, November 28, 2024, 10:58:

9. Denis Cooper , Thursday, November 28, 2024, 11:16:

10. NH , Thursday, November 28, 2024, 11:20:

EXCLUSIVE : Forget the Rachel Reeves "£22bn black hole"
The Bank of England is heading for a £240bn black hole, says our analysis of OBR data