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Bank of England extends Government’s overdraft facility amid COVID-19 disruption

The Bank of England has this morning (April 9) announced that it will extend the use of the Government’s overdraft facility, giving the Treasury a vital source of funding in its effort to mitigate the economic impact of COVID-19.

The Ways and Means (W&M) facility is a long-established agreement, which enables sterling cash advances from the Bank of England to the Government.

This direct source of funding can be raised without the Government having to sell bonds on the markets in the usual way of financing public spending.

The Bank said that the extension of the W&M facility was only a temporary measure that “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 news comes at a time of unprecedented Government borrowing to fund the range of schemes it has in place to support businesses, jobs and incomes.

The economy is running at somewhere in the region of two thirds its normal capacity due to the UK lockdown. This has a huge economic cost and is one that the Government is trying to pay.

It is thought that the Government will continue to use the markets as its primary source of financing and that any use of the W&M facility will be temporary and short term.

The Bank of England statement said: “The W&M facility is the government’s pre-existing overdraft at the Bank. Any drawings will be repaid as soon as possible before the end of the year.

“HM Treasury, the Debt Management Office and the Bank will continue to cooperate closely to support the orderly functioning of the gilt and sterling money markets.”

The previous high for use of the W&M overdraft facility was £19.9 billion in 2008. The current account standing balance is £400 million.