Bank of England Printing Billions Before Brexit

Bank of England Printing Billions Before Brexit.

In a surprise early announcement, the Bank of England has confirmed that it will take extraordinary measures to protect bank liquidity ahead of the European "in out" vote, the so-called Brexit.

Repos

In short, the bank has suggested that whilst it will continue its usual monthly quantitative easing programme for not just UK government debt but also US dollar debt, it has confirmed that it will issue at least three additional indexed linked gilt repurchases (known as repo's) around that period. In short, the Bank of England will be 'printing money' to buy back debt thus releasing more cash into the economy. This offers any banks that are under strain for example if there was a run on sterling or people withdrawing huge amounts of cash to be able to cope with any liquidity issues.

Wht index linked government securities?

The usual process for a repo is to buy and sell government debt overnight. The Bank of England has suggested that it will buy back indexed linked government securities. The way we see this is the Bank of England is expecting much higher inflation in the coming years and particularly if there is a Brexit “out” vote.

If the British public do vote to leave the European Union whilst the pound is already devaluing, it will devalue even further meaning that our holiday pound will buy less overseas, foreign goods will become more expensive, British exports will become cheaper overseas and eventually the economy will recover.

Inflation

In addition, by fueling inflation with price rises within the UK, this means that UK government debt will devalue over time. In simple terms, the debt will never have been repaid but with inflation devaluing it, it becomes cheaper to repay in later years. Hence, the Bank of England buying back indexed linked i.e. inflation proofed debt and not fixed interest government securities.

We also read this that the Bank of England is expecting the British people to vote to leave Europe. Expect market turmoil over the next few months.