Banks borrowed £5.085 billion ($6.84 billion) from the Bank of England at its weekly indexed long-term repo for six-month funds on Tuesday, marking the highest borrowing level since March 2020. This surge coincided with the onset of the COVID-19 pandemic, when demand for liquidity soared.
The Bank of England (BoE) has been actively encouraging increased utilisation of this repo facility as part of its strategy to transition away from a system dominated by excess reserves in the UK banking sector. This shift is also linked to the unwinding of £875 billion in quantitative easing gilt purchases made from 2009 to 2021.
Almost all the funds borrowed this week were secured with top-grade collateral, enabling banks to access these funds without incurring any additional charges over the BoE’s main interest rate. This makes it an attractive option for financial institutions seeking to bolster their liquidity.
In contrast, just last week, the BoE had allotted £2.352 billion at the repo. The significant increase in borrowing this week suggests a heightened demand for liquidity among banks, which may reflect underlying concerns about cash flow or economic conditions.
