“Other assets” on the Bank of England’s balance sheet rose by £475 million in the week to yesterday, bringing the cumulative increase since 12th September to £23.3 billion – the best available estimate of the Bank’s loan to Northern Rock.

The weekly rise compares with £2.2 billion last week and is the lowest since Northern Rock imploded. The slowdown is mildly encouraging but the loan is likely to continue to grow near term as wholesale funding matures.

It has been suggested that interest received on the Northern Rock loan will cut the budget deficit by about £2 billion (6.75% on £30 billion over one year). However, such estimates wrongly assume the Bank of England is able to source the funds at zero cost. In fact, the loan has been financed by a cut in the Bank’s repo lending, on which it earns interest, and rises in banks’ reserves at the Bank and other forms of borrowing, on which interest is paid. The budgetary impact will therefore be much smaller – possibly about £300 million (based on a net interest margin of one percentage point on £30 billion for a year).