Abstract
▪ The BoE has hinted that it could directly finance the government's soaring deficit. While there is no urgency to do so at present, BoE purchases could calm potential disruption in the gilt market and be a strong economic support. ▪ Direct money financing by the UK central bank would be a radical approach, but not unprecedented. However, it's necessary to go back to 1914 to find the last episode when the BoE took on the role of funding public borrowing. ▪ Once normality returns, money financing could result in a rise in prices. But a time‐limited expedient shouldn't result in persistent inflation. And policymakers could seek to unwind the BoE's money creation.
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