The Bank of England has agreed to temporarily finance government borrowing during the coronavirus crisis, a measure last used extensively during the financial crisis.
The UK government normally borrows money via the issues of bonds to the market.
The measure announced today gives the government more flexibility in raising cash quickly.
“As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from covid-19,” the Bank said in a joint statement with the Treasury.
The government and Bank said any borrowing from the Ways and Means facility – effectively the government’s overdraft with the Bank – would be repaid by the end of the year.
The facility currently has borrowing of £400m, and usage previously peaked at £19.9bn in 2008.
“The government will continue to use the markets as its primary source of financing, and its response to covid-19 will be fully funded by additional borrowing through normal debt management operations,” the statement said.
The Bank’s governor Andrew Bailey previously said the Bank would not engage in so-called monetary financing – the permanent funding of government spending, linked to hyperinflation in 1920s Germany and more recently in Zimbabwe.
The UK has also been selling bonds to raise cash, with plans to raise up to £45bn from investors this month.