The Bank of England (BoE) has reshaped its approach to unwinding quantitative easing, announcing a 6-month pause in gilt sales while effectively ending active sales of the longest-maturity government bonds. The move represents a major shift to the central bank’s quantitative-tightening strategy as pressure on Britain’s long-term borrowing market has intensified.
The decision, announced this month, comes after several years in which the bank steadily reduced the government debt accumulated through its quantitative-easing programme. The Asset Purchase Facility’s gilt holdings, which once approached £900 (USD 1,206) billion, had fallen to about £488 (USD 653.92) billion by the latest stage of the programme.
The revised framework will largely allow around £341 (USD 456.94) billion of the remaining holdings to mature instead of actively selling them. A further £146 (USD 195.64) billion is expected to be sold over roughly eight years, reducing the pace of active quantitative tightening considerably compared to the previous programme. The Bank estimates that its overall gilt holdings will decline by an average of about £46 (USD 61.64) billion a year, compared with the earlier £70 (USD 93.8) billion annual target.
The longest-dated securities, particularly gilts maturing from 2049 onwards, will no longer be actively sold. Instead, they are intended to remain on the bank’s balance sheet as part of the assets supporting banknotes. The adjustment reflects concerns that continued selling of long-duration debt could add pressure to an already unsettled gilt market.
The change also comes against a difficult backdrop for UK government borrowing. Long-term gilt yields have risen sharply, while inflation remains above the Bank’s 2% target. Reuters reported that the Bank estimates its previous quantitative-tightening operations have added roughly 0.25 percentage points to gilt yields, although some market analysts have put the effect substantially higher for 30-year debt.
Another element under consideration is a possible arrangement allowing the bank to transfer or sell part of its remaining gilt portfolio directly to the UK Debt Management Office. Such an approach may reduce the need for the central bank to place large volumes of long-term securities directly into financial markets.
The policy does not represent an abandonment of quantitative tightening. Rather, it changes the mechanism and timetable through which the bank intends to shrink its post-QE balance sheet. The revised strategy is designed to reduce disruption in long-term government debt markets while continuing the gradual withdrawal of extraordinary monetary-policy support.
For investors, the announcement introduces a more measured path for the bank’s balance sheet reduction. For the government, meanwhile, the development could influence the supply and pricing of long-dated borrowing at a time when public finances are already sensitive to higher interest costs.
