LONDON / RankWire.AI / – The Bank of England has outlined a multi-year plan to wind down its remaining monetary-policy gilt holdings by September 2034. The central bank will offload £20 billion of government bonds annually, while allowing others to mature naturally. Together, these sales and maturities will decrease the portfolio by an average of £46 billion each year. This plan replaces the previous annual approach to quantitative tightening and offers a clear path for the final phase of the process.
At the time of setting the new framework in September 2026, the Bank held £488 billion of UK government bonds for monetary-policy purposes. It plans to let £222 billion of gilts maturing before 2035 reach maturity. Additionally, £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. The remaining £146 billion of gilts maturing between 2035 and 2049 are slated for active sales under the quantitative tightening program.
The Bank of England has discussed a new sales method with HM Treasury and the Debt Management Office for the £146 billion portfolio. Under this proposal, the government would purchase the gilts from the Asset Purchase Facility at market prices. HM Treasury would direct the Debt Management Office to conduct these purchases within the government’s financing framework. The Bank will evaluate progress before April 2027, and a final decision on the direct government purchase model is still pending.
Government gilt sales plan still under review
The Monetary Policy Committee unanimously set active gilt sales at an annual rate of £20 billion within its new multi-year framework. The Bank stated it will maintain this sales pace regardless of the final method of execution, except in limited circumstances outlined by the committee. Existing Asset Purchase Facility sales auctions are paused while officials review the implementation details. The Bank expects to release operational information by April 2027, whether or not the direct government purchase model is adopted.
The Asset Purchase Facility benefits from an HM Treasury indemnity covering gains and losses from its operations. From 2009 to 2022, it transferred positive net cash flows to the Treasury, peaking at £123.9 billion in September 2022. Since then, cash flows have shifted from the Treasury back to the facility. The Bank has noted that future cash flows remain sensitive to interest rates and gilt prices. Different unwind speeds do not necessarily affect the total costs over the long term on a net present value basis.
Final phase of quantitative tightening begins
This new schedule follows a significant reduction in the Bank’s bond holdings since quantitative tightening started. The Bank’s monetary-policy gilt holdings dropped from about £895 billion in February 2022 to £488 billion by September 2026. In the past 12 months, the stock decreased by £70 billion, with £21 billion coming from active gilt sales. Bank officials estimate that quantitative tightening contributed about 20 to 30 basis points to the increase in UK long-term bond term premiums since the process began.
The Bank also kept the Bank Rate at 3.75% at its September meeting. The Monetary Policy Committee voted 6-3 on that decision. The decision to continue quantitative tightening was unanimous. The Bank emphasized that Bank Rate remains its primary tool for adjusting monetary policy. It also stated that gilt sales should proceed gradually and predictably. Under the new plan, monetary-policy gilt holdings will be reduced to zero by September 2034. The separate £120 billion portfolio supporting banknote issuance will remain outside the quantitative tightening process.