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.
