The Bank of England’s Ways and Means facility is used as the government’s overdraft account, meaning that the government is able to borrow money from the Bank.
This amount in the overdraft account is usually worth around £400 million, but it can be extended if the government needs an injection of cash quickly and without disrupting the financial market.
For example, at the height of the 2008 financial crisis it was extended massively to nearly £20 billion.
The coronavirus pandemic has seen such a situation arise again for the first time since, as government spending increases to support businesses and individuals through the economic freeze caused by lockdown measures.
A deserted Bank of England and Royal Exchange, pictured here on March 30.
It is not stated exactly how much the W&M facility will be extended by.
In a statement, the HM Treasury said that the overdraft extension would be a temporary measure, providing “a short-term source of additional liquidity to the government if needed”.
It added: “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 use of the W&M facility will be temporary and short-term.”
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If the lending is going to be like the 2008 financial crisis, billions could be borrowed
In addition, the government has agreed that any amount borrowed will be repaid before the end of the year.
According to the BBC, the Bank will charge a 0.1 percent interest rate on any money that the government withdraws from the overdraft.
The Office for National Statistics (ONS) recently published data from its Business Impact of Coronavirus Survey, which showed that 29 percent of the 4,598 businesses that responded reported having to reduce staff on a short-term basis.
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Less than half (40 percent) of businesses said they were confident that they could continue to operate during the pandemic.
And total visits to UK ports decreased by 12.4 percent in the week commencing March 23.
Plus, the UK economy grew just 0.1 percent between December and February.
All of this points to the fact that the government must increase spending to help people stay afloat.
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The government’s overdraft extension may prove to be a controversial move, perhaps leading to fears that the government will resort to money-printing.
Guardian columnist Nils Pratley said that temporary financial measures adopted in times of crisis “have a habit of becoming permanent.”
The government has said that this will not be the case, however.
Meanwhile, Foreign Secretary Dominic Raab said today in the government’s daily Covid-19 press briefing that there are “early signs” suggesting that social distancing measures are “having the impact we need to see.”
Dominic Raab said there are no plans to ease lockdown measures just yet.
However, he added that “it’s too early to say that conclusively”, and said there would be a Scientific Advisory Group for Emergencies (SAGE) meeting next week to discuss the latest evidence regarding the effectiveness of current measures and to review them.
He said that the government expects to be able to give an update on this at the end of next week, and noted:“Let me just be, again, very clear about this. The measures will have to stay in place, until we’ve got the evidence that clearly shows we have moved beyond the peak.”
Meanwhile, Prime Minister Boris Johnson has been moved out of intensive care, Downing Street has said.
It is understood that he will remain in hospital for now while his condition is monitored.