Bank of England to temporarily finance UK government spending

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The Bank of England has agreed temporarily to finance government borrowing in response to COVID-19 if funds cannot immediately be raised from debt markets, reviving a measure last used to any large degree during the 2008 financial crisis.

Britain’s government typically borrows money direct from markets through bond issuance, and this week financial markets showed a strong appetite to fund more than 10 billion pounds of government bonds, some at record-low yields.

But markets were far choppier last month – before the BoE said it would buy 200 billion pounds of assets, mostly bonds – and Thursday’s announcement gives the BoE scope to finance the government directly.

“As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from Covid-19,” the BoE said in a joint statement with the finance ministry.

Read more via Reuters/BOE

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