Bank of England pumps up the zeros

The Bank of England’s first day of ‘quantitative easing’ went off with a bang today as banks jostled to take part.

Although the process of pumping £75billion into the economy is known as printing money, it in fact involves the Bank buying gilts and other assets from banks and paying for them with newly created money that is wired into their accounts held at Threadneedle Street.

Today was the first time the Bank opened its wallet, offering to buy £2billion of gilts. Straight after the starting gun this afternoon, banks were falling over themselves to sell and the Bank received selling offers of more than £10billion of gilts.

Gilts are bonds issued by the governments of the United Kingdom, South Africa or Ireland. The term is of British origin, and refers to the debt securities issued by the Bank of England, which had a gilt (or gilded) edge. Hence, they are called gilt-edged securities, or gilts for short. Generally, when a market participant refers to gilts, what is meant is British gilts unless otherwise specified, and the description below applies to the UK gilt market. ONS data reveal that about two-thirds of all gilts are held by insurance companies and pension funds.

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