LONDON / RankWire.AI / – The Bank of England has announced a multi-year plan to gradually unwind its remaining holdings of monetary-policy gilts by September 2034. The central bank will offload £20 billion of government bonds annually, while allowing other gilts to mature naturally. This combined approach, consisting of sales and maturities, is projected to decrease the portfolio by an average of £46 billion each year. This plan replaces the previous yearly quantitative tightening method and establishes a clear path for the final stage 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 intends to let £222 billion of gilts maturing before 2035 expire without intervention. An additional £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. Consequently, £146 billion of gilts maturing between 2035 and 2049 will be actively sold as part of the quantitative tightening plan.
The Bank of England has engaged in discussions with HM Treasury and the Debt Management Office regarding a new sales approach for the £146 billion portfolio. Under the proposed plan, the government would purchase gilts from the Asset Purchase Facility at prevailing market prices. HM Treasury would direct the Debt Management Office to conduct these purchases within the government’s financing framework. The Bank intends to review the progress of this arrangement before April 2027, and a final decision on the direct government purchase model is still pending.
Review of government gilt sales strategy continues
The Monetary Policy Committee has unanimously agreed on an active gilt sales rate of £20 billion annually under the new multi-year plan. The Bank stated that it will adhere to this sales pace regardless of the chosen implementation method, except in limited circumstances outlined by the committee. Currently, auctions for existing Asset Purchase Facility sales are paused as officials evaluate the operational setup. The Bank aims to publish detailed procedures by April 2027, regardless of whether the direct government purchase model moves forward.
The Asset Purchase Facility benefits from an HM Treasury indemnity covering gains and losses from its operations. Between 2009 and 2022, the facility transferred a net positive cash flow 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 highlighted that future cash flows are highly sensitive to interest rates and gilt prices, noting that different unwind speeds may not significantly alter the lifetime costs when measured on a net present value basis.
Quantitative tightening enters its final multi-year phase
This new schedule follows a notable reduction in the Bank’s bond holdings since the start of quantitative tightening, which saw its monetary-policy gilt holdings decrease from a peak of approximately £895 billion in February 2022 to £488 billion in September 2026. Over the last 12 months, the stock decreased by £70 billion, including £21 billion from active gilt sales. Bank officials estimate that the process contributed approximately 20 to 30 basis points to the rise in UK long-term bond term premiums since it began.
At its September meeting, the Bank also maintained the Bank Rate at 3.75%, with the Monetary Policy Committee voting 6-3 in favor of this decision. The decision to continue quantitative tightening, however, was unanimous. The central bank reaffirmed that the Bank Rate remains its primary tool for monetary policy adjustments and emphasized that gilt sales should proceed gradually and predictably. Under the revised framework, the Bank intends for its monetary-policy gilt holdings to reach zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will remain outside the scope of quantitative tightening.