Full Breakdown
Bank of England Poised to Slow Quantitative-Tightening Amid Rising Borrowing Costs
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Core Event – Potential Cut to Annual Gilt-Sale Target
Economists have urged Chancellor John Healey to press the Bank of England to slow or halt its active gilt-sale programme ahead of the Monetary Policy Committee (MPC) meeting on September 15. The Bank is expected to consider reducing the annual quantitative-tightening (QT) envelope from £70 billion to £50 billion, and may halt sales of 20- and 30-year gilts.
Background & Context
Since late 2022 the Bank has been selling gilts acquired under quantitative easing (QE). Holdings have fallen from a peak of £875 billion to under £490 billion, one of the fastest reductions among advanced economies. The annual sales target was cut from £100 billion to £70 billion a year ago and is projected to fall again to £50 billion at this meeting.
Data & Statistics
- Yield pressures: 10-year gilt yield passed 5.4 %, the highest since July 2007; 30-year gilt yield rose to 5.93 %, the highest since March 1998.
- Loss estimates: The Bank’s August 4 report warned QT could generate £120 billion in losses to the exchequer if interest-rate paths hold. The Office for Budget Responsibility (OBR) projects the bond-sale programme will add about £47 billion to government debt by 2031, assuming annual sales of £32 billion.
- Portfolio moves: Five sale operations in Q2 2026 cut holdings by £6.1 billion, leaving £521.8 billion on the balance sheet as of June 30.
Official Statements & Responses
Governor Andrew Bailey defended the active sales, arguing the Bank must retain firepower to restart QE if needed and that the UK’s longer-dated gilt holdings require a different unwind approach than the Fed or ECB. Treasury officials declined comment. The Bank’s Asset Purchase Facility report (published August 4) confirmed the MPC’s vote in September 2025 to reduce holdings by £70 billion over the year to September 2026.
Criticism & Opposition
- Charlie Bean, former deputy governor, warned it is “politically unsustainable” for the MPC to act without Treasury involvement.
- John Llewellyn, Independent Economics, called the notion of a “firewall” between the Treasury and the Bank a “fiction”.
- Christopher Mahon, Columbia Threadneedle, argued the Bank’s methods are twice as expensive as the ECB’s and four times as expensive as the Fed’s.
- Alexander Harvey, Oxford Economics, suggested annual active sales stay around £20 billion to avoid unsettling markets.
- Damian Pudner, Great British Think Tank, said pausing QT would give “breathing room” to households and markets, and that a cut to £50 billion “is not sufficient”.
Conflicting Reports & Gaps
- The Bank’s internal estimate of £120 billion in potential losses contrasts with the OBR’s projection of £47 billion added to debt by 2031, reflecting different assumptions about interest-rate paths and sale volumes.
- The Guardian notes the Bank plans to stop selling 20- and 30-year gilts, while City Am reports only a possible slowdown, leaving the final policy on long-dated bonds unclear.
Verbatim Quotes
- “I do not think it is politically sustainable for the MPC to be able to take such decisions without the involvement of the [Treasury] or else somehow reduce the magnitude of spillovers [to the Treasury].” — former deputy governor
- “At its Thursday MPC announcement, the Bank has a chance to change course,” — Damian Pudner
What’s Next
The MPC’s Thursday meeting will set the QT envelope for the next 12 months and determine whether sales of long-dated gilts are paused or continued. Market participants will watch for any change to the annual target and for signals on coordination with the Treasury on fiscal spillovers.