Published by Global Banking & Finance Review®
Posted on June 23, 2025
3 min readLast updated: January 23, 2026
Add as preferred source on GoogleBoE's Bailey defends bond programme against Reform UK's criticism, emphasizing its economic benefits and addressing concerns over costs.
By William Schomberg
LONDON (Reuters) -Bank of England Governor Andrew Bailey defended the central bank's programme of government bond purchases and sales which has come under fire from some politicians for its cost.
In a letter to Richard Tice, deputy leader of the Reform UK party which is led by former Brexit campaigner Nigel Farage, Bailey said claims that the programme was more expensive than those run by other central banks did not tell the full story.
Britain's government issued more long-term debt than other countries at a time when the BoE's bond-buying - or quantitative easing - was keeping borrowing costs low, giving the country a longer-lasting benefit, Bailey said.
"Put simply, the cash flow cost of QE/QT is not therefore what it seems, and the outcome in these terms will be better," he said in the letter published on Monday.
Reform - which is leading Britain's more established political parties in opinion polls - has said the government could save as much as 40 billion pounds ($53.6 billion) a year by stopping payment of interest to banks on reserves held at the BoE.
Most of those reserves were created as a byproduct of the central bank's bond purchases which began in 2009 and reached a peak of almost 900 billion pounds in holdings in 2021.
Since then, the BoE has sold much of its bond portfolio - known as quantitative tightening - and the programme is due to incur losses for the public finances because of a rise in interest rates and a subsequent fall in the value of the bonds.
In his letter, Bailey said the bond purchases shielded Britain's economy from a string of economic shocks over the past 16 years.
"It is easy to forget the severe problems we faced with these shocks," he said. "Although the counterfactual is unknowable with any precision, most estimates indicate that QE provided very significant support to the UK economy, protecting both jobs and tax revenues."
Bailey said that ceasing paying interest on reserves was tantamount to increasing taxes on banks and would lead to lower interest payments for savers or higher interest rates for borrowers. He also disputed Reform's view that British banks were making excess profits.
"Interest paid on reserves is not free money for the banks, not least as most of it is paid on to customers in the form of interest on their deposits," Bailey said.
(Writing by William Schomberg; editing by David Milliken)
Bailey stated that the cash flow cost of quantitative easing and tightening is not as it seems, suggesting that the outcomes will ultimately be better.
Reform UK claims that the government could save as much as 40 billion pounds ($53.6 billion) annually by ceasing these payments.
Bailey argued that the bond purchases have shielded Britain's economy from various economic shocks over the past 16 years, providing significant benefits.
Bailey warned that ceasing these payments would effectively increase taxes on banks, leading to lower interest payments for savers or higher rates for borrowers.
The Bank of England's bond purchasing program started in 2009 and peaked at almost 900 billion pounds in holdings by 2021.
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