UK banks have been in a difficult position. They have been showing a continued and, more worryingly, an unprecedented demand for cash from the Bank of England. They are seeking to replenish liquidity as policymakers persist in selling bonds accumulated during years of quantitative easing. Remember that those bonds drop in price (becoming worthless) as the interest rate rises. The opposite is true in the bond market if you buy bonds at a high-interest rate.
Banks have secured £17.2 billion ($21.9 billion) in funding through one-week repurchase agreements (AKA repos), an increase from £16.2 billion and marking the sixth consecutive week of record demand.
The BOE's bond sales have reduced the surplus cash in the economy to its lowest level since 2021, prompting many analysts to call for an end to the policy. They caution that excessive drops in liquidity could drive up borrowing costs in money markets and hinder the BOE’s ability to lower rates.
“We may have re ...
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