BOE allots record 6‑month repo to restore liquidity

The Bank of England allotted £5.085 billion via its six‑month weekly indexed long‑term repo operation — the highest amount since March 2020. The operation is based in London and aims to encourage use of its facility as the Bank transitions away from excess reserves.

The repo allotment marked a sharp rise from the previous week’s £2.352 billion, signalling heightened demand from commercial banks seeking longer‑dated funding. Nearly all of the funds were backed by top‑tier collateral, meaning that the institutions did not have to pay a surcharge above the Bank’s main interest rate.

The move comes amid a broader strategy by the Bank of England to reduce holdings accumulated during quantitative easing, which peaked at about £875 billion between 2009 and 2021. The Bank is gradually shifting toward a “scarce reserve” regime, under which markets are encouraged to use the Bank’s liquidity facilities more actively.

Analysts say the sharp jump in repo demand reflects both funding stresses in the banking sector and residual uncertainty about the path of interest rates. The facility gives banks a way to access longer-term liquidity directly from the central bank rather than relying entirely on interbank markets. Some market watchers view this as a mild stress indicator in wholesale funding markets.

From a monetary policy standpoint, the repo operation is not itself a tool for rate setting, but it supports smoother function in overnight and term funding markets. Observers will watch whether this increased repo usage continues in coming weeks, and whether it correlates with volatility in gilt yields or money markets.

Banks participating in the operation are required to pledge high-quality assets such as UK government securities. The Bank said that usage of the facility is consistent with its broader plan to shift the liability structure of the banking system and promote more active liquidity management.