The banks and societies are believed to have reduced their gilts investments by about pounds 300m last month. This was despite a widespread belief that the Chancellor would announce Budget measures to encourage them to invest in government bonds.
On Tuesday the Chancellor said he would include purchases of gilts by banks and building societies in the funding of the public sector borrowing requirement, although he turned down banks' requests for new types of short-dated gilts that would be more attractive to them.
The banks' unreliability as buyers of gilts explains why the Chancellor soft-pedalled the change in the funding rules.
In fact, a handful of clearing banks bought pounds 465m of gilts in February, bringing their total in the first two months to pounds 1.7bn, according to figures yesterday from the British Bankers Association. But their purchases are believed to have been more than offset by sales of pounds 700m to pounds 800m by building societies, other banks and foreign and merchant banks.
The result, according to Independent calculations, was that while total bank and building society purchases in the current financial year rose to pounds 5.8bn at the end of January - after bank purchases of pounds 2.5bn during the month - they fell back to pounds 5.5bn at the end of February. The figures have been adjusted to exclude sale and repurchase agreements.
If banks were to build up large gilts holdings and run them down again it would make the Government's task harder than ever. The burden of replacing the bank holdings would fall back on pension funds, insurance companies and overseas investors.Reuse content