The Bank of England's Monetary Policy Committee (MPC) is expected to announce a slower pace for quantitative tightening (QT) when it meets in September. This shift comes as a surprise to some, as the MPC had previously maintained that QT was not an active monetary policy tool and that Bank Rate was its primary instrument. However, given the significant rise in UK government bond yields over the past two years, the Bank is now adjusting its strategy to avoid further market disruption.
Under the new plan, the Bank of England is anticipated to reduce its asset holdings by around £75 billion in the year starting September, a reduction from the current £100 billion annual pace. This slower rate aligns with market expectations, as a survey in May indicated investors largely anticipated QT to slow to a £75 billion yearly pace from September, and further to £50 billion in 2026-27, with active sales effectively ceasing by 2028.
This adjustment is partly driven by a reduced volume of maturing gilts in the upcoming year. To maintain the £100 billion pace, the Bank would have needed to sell a record £51 billion in gilts, a significant increase from its previous sales. By slowing QT, the Bank aims to keep the process in the background and avoid exacerbating market volatility. Reserves currently stand at approximately £680 billion, well above the £385 billion to £540 billion range identified by bankers as the preferred minimum for the system.
