The government has expanded its overdraft with the Bank of England to make sure it has enough cash to cope with the economic fallout from coronavirus.
The move will see the government’s bank account at the central bank – known as the Ways and Means Facility – rise to an undisclosed amount.
It would mean the government has access to funds if the COVID-19 pandemic leaves it unable to easily raise money from markets.
The facility usually stands at around £400m but when it was last expanded in the 2008 financial crisis, its value increased briefly to £19bn.
In a joint statement, the Treasury and the BoE said: “As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cash flows and support the orderly functioning of markets, through the period of disruption from COVID-19.
“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.
“Any drawings will be repaid as soon as possible before the end of the year.”
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Sky’s economics editor Ed Conway described the move as “another sign that, while (the government is) currently able to sell debt into the open market, it is taking no risks”.
He said the BoE being able to lend money directly to the government is not unprecedented but “it further muddies the waters of whether money is being printed to keep the government solvent”.
“The distinction between monetary (for example BoE) and fiscal (for example gilt auctions) financing of government is already a grey area, especially when the BoE is buying £200bn gilts,” he said.
“The BoE insists it decides that independently. That’s a fig leaf of sorts – important, but a fig leaf. And the leaf keeps getting smaller.”
Fran Boait, executive director of Positive Money, said: “Direct monetary financing allows the government to deliver the necessary spending to save lives, while reassuring the public that they will not be overburdened with future debt repayments.
“It also ensures that the Treasury has access to funding even if government debt markets are disrupted, as we have seen signs of during the coronavirus crisis.”