The UK government recently decided to transfer the coupon income from the Bank of England’s gilt buying program (Asset Purchase Facility (APF)) to the UK Treasury. This is not only an interesting development in itself, but is yet another marker in the slowly evolving relationship between the central banks of the struggling developed market economies and their governments.
Looking at the UK’s recent action, there are two main effects. First, it will reduce UK’s debt/GDP ratio. The transfer of £35bn initially and roughly £15bn each year after to the UK Treasury will have a material affect on the debt ratio, leaving it about 4% points lower in 2016 (all other things equal) than the IMF’s recent forecast (at 74%).