Usage of Bank of England long-term repo drops to 3-month low after cost increase

LONDON (Reuters) -Usage of the Bank of England's weekly indexed long-term repo fell to its lowest in nearly three months on Tuesday after the central bank increased the cost of borrowing from it.

British-based lenders borrowed 1.280 billion pounds ($1.68 billion) of six-month funds from the BoE, secured against collateral, the lowest amount since a repo on August 26 and down from 6.073 billion pounds the week before.

The BoE has been seeking to increase usage of its repo facilities as it unwinds its 875 billion pounds of quantitative easing gilt purchases and shifts to a repo-led model for providing liquidity to Britain's financial system.

However, this week it raised the spread for banks using the highest-quality collateral at the indexed long-term repo to 3 basis points over Bank Rate from zero.

The change, first announced in June, was intended "to balance incentives for participants between the STR (short-term repo) and ILTR facilities", BoE executive director for markets Vicky Saporta said last week.

The BoE's short-term repo, which offers seven-day funds with zero spread over Bank Rate, received 92.0 billion pounds of usage last week.

($1 = 0.7608 pounds)

(Reporting by David Milliken; editing by Suban Abdulla)