Using market yields at the end of June 2023, as the pink line shows, the total loss from QE will be £150bn.
From the peak inflow this is a total loss of more than £270bn, or almost £10,000 for every household in the UK.
The annual losses over the next few years are eye-watering too, as the orange bars show.
To put the cost of £40-50bn in context, that is about half of the total annual education budget in the UK.
At the time of writing, gilt yields are slightly higher than at the end of June, so the end Q3 projected numbers will be a little bit worse still if there are no significant market moves over the next couple of weeks.
Over the remaining estimated 10-year life of the APF, I think the losses are unlikely to turn out to be quite as large as these forecasts, but that is only because the BoE has already raised rates too far, so will be cutting rates next year when the damage from such restrictive monetary policy flows through to the economy.
Even if the total loss is below £150bn, it is still a huge cost for the UK taxpayer to bear.
I find it particularly frustrating how dismissive BoE officials have been of this; in a speech in July 2023, Dave Ramsden, deputy governor for markets and banking, said that due to the the Treasury indemnity “monetary policy decisions are not constrained by the potential implications for the bank’s balance sheet”.
He explicitly states “the monetary policy committee does not take into account financial risk or profit when taking monetary policy decisions, including about the APF gilt portfolio”.
I would like that to sink in for a minute: the MPC is not taking into account potential future losses when considering QE.
There are already many negative consequences of QE, such as increased wealth inequality and distortions of capital allocations, but add in a £150bn loss and surely the hurdle for ever doing this again is much higher.
It is true that QE had some benefits, the first batch was estimated to have boosted GDP by 1.6 per cent at its peak (according to the BoE using the average across 16 studies), but then the law of diminishing marginal returns kicked in with the further boosts to QE.
In my opinion the costs of QE now firmly outweigh the benefits, but I am sure a BoE official would disagree with me, showing me some analysis of the counterfactual if QE had never happened.
