When the Bank of England buys or sells government gilts, what effect does this have on commercial money, and the money supply?

Date released:  11 May 2016

 

Disclosure: 

 

The Bank of England (the ‘Bank’) through its subsidiary, the Bank of England Asset Purchase Facility Fund Limited (‘BEAPFF’), has bought gilts as part of its Quantitative Easing (‘QE’) program. The funds BEAPFF uses have been borrowed from the Bank.

 

Every £1 spent on QE results in a one to one increase in the money supply and in commercial bank deposits held at the Bank. So far BEAPFF has not sold any gilts back to the market, but when it does, the money supply will shrink by the amount sold as the BEAPFF starts to pay back its loan from the Bank. 

 

Further information on QE can be found on the Bank’s website.