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) for monetary policy purposes 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 its monetary policy purposes on 1 November 2022.
On 28 September 2022 the authorised maximum total size of the APF was increased by £100 billion from £866 billion to £966 billion to allow for the Bank to undertake a time limited financial stability intervention in long-dated and index-linked gilt markets, which took place between 28 September 2022 and 14 October 2022. Purchases under this intervention totalled £19.3 billion.
On 4 November the Governor and I agreed to reduce the maximum size of the APF by £80 billion from £966 billion to £886 billion to reflect the unused portion of the recent financial stability related APF expansion. Separately, on 22 November 2022, the authorised maximum size of the APF was reduced by £15 billion from £886 billion to £871 billion to reflect the reduction in the stock of assets held by the APF for its monetary policy purposes since 5 May 2022.
On 29 November 2022, the Bank began to unwind its financial stability related gilt portfolio which it completed on 12 January 2023. I welcome the successful unwind of this portfolio which I note has been completed in a timely and orderly manner. I have therefore agreed with the Bank to decrease the authorised maximum size of the APF by a further £20 billion, from £871 billion to £851 billion, which reduces the size of the contingent liability associated with the APF’s indemnity.
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.