Banks cut gilts holdings: Blow to Treasury over PSBR hopes
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.BANKS and building societies began to run down their holdings of gilts in February after a sharp rise in January, hitting Treasury hopes that the financial sector will contribute substantially to funding the pounds 50bn public sector borrowing requirement over the coming year.
The banks and societies are believed to have reduced their gilts investments by about pounds 300m last month. This was despite a widespread belief that the Chancellor would announce Budget measures to encourage them to invest in government bonds.
On Tuesday the Chancellor said he would include purchases of gilts by banks and building societies in the funding of the public sector borrowing requirement, although he turned down banks' requests for new types of short-dated gilts that would be more attractive to them.
The banks' unreliability as buyers of gilts explains why the Chancellor soft-pedalled the change in the funding rules.
In fact, a handful of clearing banks bought pounds 465m of gilts in February, bringing their total in the first two months to pounds 1.7bn, according to figures yesterday from the British Bankers Association. But their purchases are believed to have been more than offset by sales of pounds 700m to pounds 800m by building societies, other banks and foreign and merchant banks.
The result, according to Independent calculations, was that while total bank and building society purchases in the current financial year rose to pounds 5.8bn at the end of January - after bank purchases of pounds 2.5bn during the month - they fell back to pounds 5.5bn at the end of February. The figures have been adjusted to exclude sale and repurchase agreements.
If banks were to build up large gilts holdings and run them down again it would make the Government's task harder than ever. The burden of replacing the bank holdings would fall back on pension funds, insurance companies and overseas investors.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments