Notification of Contingent Liability

Treasury written statement – made on 23rd November 2022.

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Photo of Jeremy Hunt Jeremy Hunt The Chancellor of the Exchequer

The Monetary Policy Committee (MPC) of the Bank of England (“the Bank”) decided at its meeting ending on 3 February 2022 to reduce the stocks of UK government bonds and sterling non-financial investment-grade corporate bonds held in the Asset Purchase Facility (APF) by ceasing to reinvest maturing securities. The Bank ceased reinvestment of assets in this portfolio in February 2022 and has since commenced sales of corporate bonds on 28 September 2022, and sales of gilts acquired for monetary policy purposes on 1 November 2022.

The then Chancellor agreed a joint approach with the Governor in an exchange of letters on 3 February 2022 to reduce the maximum authorised size of the APF for asset purchases every six months, as the size of APF holdings reduces.

On 4 November the Governor and I agreed to reduce the maximum size of the APF from £966bn to £886bn to reflect the unused portion of the recent financial stability related APF expansion. Since 05 May 2022, the total stock of assets held by the APF for monetary policy purposes has fallen from £866.6bn to £851.6bn. In line with the approach agreed with the Governor, the authorised maximum total size of the APF has therefore been reduced to £871bn.

The risk control framework previously agreed with the Bank will remain in place, and HM Treasury will continue to monitor risks to public funds from the APF through regular risk oversight meetings and enhanced information sharing with the Bank.

There will continue to be an opportunity for HM Treasury to provide views to the MPC on the design of the schemes within the APF, as they affect the Government’s broader economic objectives and may pose risks to the Exchequer.

The Government will continue to indemnify the Bank, the APF and its directors from any losses arising out of, or in connection with, the facility. If the liability is called, provision for any payment will be sought through the normal supply procedure.

A full departmental Minute has been laid in the House of Commons providing more detail on this contingent liability.