Cameron promises crackdown as gilt traders exploit QE

Prime Minister David Cameron has warned that bankers caught manipulating the market to take advantage of QE can expect to face criminal prosecution.

According to reports, the Bank of England has already reprimanded one commercial bank which sought to push prices higher by purchasing gilts ahead of an auction and then selling them back to the Bank at a profit.

The issue was raised in the House of Commons on Tuesday by Labour MP John McDonnell (Hayes and Harlington) during Prime Minister's Questions, the Mail reports.

He asked Cameron: “There was a report a week ago that the Bank of England has reprimanded one commercial bank - and there may be others - who have tried to manipulate the gilt market to exploit quantitative easing.

“Could you ask for a report on this matter and, if it is true, explain to the bankers that we will use the full force of the law against them if they try to rip off the taxpayer?”

The Prime Minister said bankers caught trying to deliberately manipulate the gilt market would face criminal prosecution, according to the Mail.

“It is very important to send a message to all people in financial services that there is not something called white collar crime that is less serious than other crime. Crime is crime. It should be investigated and prosecuted with the full force of the law.”

In a gilt auction earlier this month, the Bank of England refused to buy bonds maturing in 2017, after traders aggressively drove up prices.

The Bank rejected all bids against the bonds it had been planning to buy as part of its QE programme as dealers drove the price of the bonds, which yield 8.75%, up to £140.78 ahead of the auction in the hope of selling the bonds back to the Bank.

The yield on a 10-year gilt climbed as the Bank said in a statement it had decided “to reject all offers against UKT 8.75 25/08/17 following significant changes in its yield in the run up to the auction.”

The BoE has never previously refused to buy government bonds as part of a reverse auction.

At the start of October Bank increased its QE programme by a greater than expected £75bn in a bid to kick-start the UK’s ailing economy, while leaving interest rates on hold at 0.5%.