An exchange of letters between Mervyn King at the Bank of England and George Osborne at the Treasury is causing a bit of excitement among economists and also among in-the-know construction folk.

They see a chink of light in the black cloud that is Government capital spending intentions, as the Treasury gets a cash boost of some £20 billion, £30 billion maybe more from the excess cash in the Quantitative Easing pot.

It’s an accounting trick that’s raising more than a few eyebrows.

So how did this come about?

Basically (very basically because arcane accounting rules relating to novel monetary policy is not my strong suit), the Bank of England electronically generated cash (£375 billion) and with it bought assets, almost all being Gilts.

Buying these Gilts raises the demand and so the price goes up (that brings down interest rates and theoretically frees cash to be leant elsewhere in the system, which is rather the point of QE). There are costs. There are coupons paid on the Gilts.

But overall the process has provided the Bank of England’s Asset Purchase Facility Fund with cash. The cash balance on February 29^th of this year was £20.7 billion. It will have risen markedly since.

Now the deal is that the Treasury takes the wins and underwrites the losses on the QE programme.

So Mr Osborne has agreed with Sir Mervyn that the cash should sit with the Treasury and not with the Bank. This is to use the phase chosen by Mr Osborne or his advisors “to normalise the cash management arrangements for the APF”.

Whoopee. Mr Osborne has an extra £30 billion or so in his coffers.

Or put another way he has an interest free loan of some many hundreds of billions of pounds.

So you can see why the fevered minds of hard-pressed construction folk are eyeing this money like foxes after a chicken.

It looks like free cash, a potential rabbit from the Chancellor’s hat that will bring much-needed relief to a plunging construction industry.

Well we’ll see, but among the more prudent minded there is some concern that this is what it looks like, a rather cheeky trick.

If inflation started to race and the Bank of England had to start selling its assets quickly the price of Gilts would fall. It does own a very large slice.

This could leave it with a hole to fill, a negative cash balance. This hole would have to be filled by the Treasury.

I don’t know how this will go down in the weird world of the international money markets. But you might fairly say that the Chancellor, who regularly reminds us of the credibility he has won, has rather added risk a few billions of pounds worth of risk to the whole QE experiment.

My apologies if I have misrepresented anything here through ignorance, but I suspect it is worth following and I think this move rather strengthens the case for construction bosses to be bashing at the doors of Government.