Skip to content

UK Treasury to Borrow from the Bank of England

It has been revealed that the UK Treasury will extend the overdraft facility that it holds at the Bank of England. This will allow the Government to pay the ever-growing cost of dealing with the coronavirus outbreak.

The Full Details

With speculation increasing that the lockdown measures will be extended further, the Treasury has confirmed that it needs to borrow money to meet the huge financial strain and allow the markets to run as normal.

They have access to an overdraft facility at the BoE which is known as the Ways and Means facility. It is believed to be £400 million just now, but the Chancellor has the power to borrow more when needed to deal with a crisis.

The last time that this was needed was following the tough 2008 recession. At this time, the overdraft rose close to £20 billion.

The Treasury and the BoE released a joint statement saying that this is purely a temporary measure, designed to “provide a short-term source of additional liquidity”. The statement went on to point out that the markets will continue to be the Government’s main source of financing.

Doing this minimises the impact that would be seen in the markets by raising funds through gilt and sterling money markets. The Government plans to pay back the money as soon as possible this year.

The British Economy Was in Decline Before COVID-19

New figures have also shown that the country’s economy was already on the slide even before the pandemic caused mayhem. This is because GDP growth in February dropped by 0.1%. Over the three months to the end of February, a 0.1% growth rate was seen.

The powerful services sector was flat during the month, as 0% growth was recorded. Meanwhile, the manufacturing industry had enjoyed a 0.5% boost following the uncertainty surrounding Brexit being swept away.

The biggest faller was construction. Poor weather and heavy rainfall around the country in February led to this sector taking a dive of 1.7%. These numbers seem to prove that talk of a post-election and post-Brexit recovery was premature.

However, the modest decline in February is a lot less then experts are expecting to see in March’s figures. This is because it was last month when the true impact was first seen. In February, it was only really travel companies that started to see a drop due to the coronavirus outbreak.

Among the few industries to thrive is that of food supplies. Supermarkets have seen sales boom and many have recruited new staff to help them to deal with massive levels of demand. In other sectors, an increasing number of firms are using the debt collection process to survive.

While analysts nervously await to see the true impact of the lockdown measures in March, it is expected that new US jobless figures show that the situation is possibly even more critical on the other side of the Atlantic.

Another 5 million Americans are thought to have filed unemployment claims in the last week, bringing the running total to 15 million new claims in just 3 weeks.