The Bank of England (BoE) has unveiled a multi-year strategy to reduce its substantial holdings of UK government bonds, aiming to offload most of its remaining £488 billion ($650 billion) portfolio by 2034. This new approach involves an immediate six-month pause in sales and a complete cessation of sales of long-dated gilts. This marks a significant shift from previous strategies and aims to provide more clarity on the future of quantitative tightening (QT).
Under the new plan, the Monetary Policy Committee (MPC) decided to reduce the stock of gilts held for monetary policy purposes to zero through annual sales of £20 billion, in addition to gilts maturing. An average annual reduction of £46 billion in the stock of UK government bonds held for monetary policy purposes is expected until September 2034. The BoE will retain £222 billion of gilts maturing before 2035 to maturity, and another £120 billion of the longest-dated gilts will be held to maturity to back banknote issuance. The remaining £146 billion in gilts, maturing between 2035 and 2049, are proposed to be sold directly to the government via the Debt Management Office (DMO), at market prices and a pre-defined pace of £20 billion a year.
The decision to halt long-dated gilt sales and pause auctions comes after a period where British 30-year borrowing costs reached their highest since 1998, amid a global bond sell-off. This move addresses concerns that the BoE's previous bond sale policy was crystallizing losses for the central bank, which are ultimately underwritten by the government. Governor Andrew Bailey has emphasized the desire to reduce interest-rate risk on the BoE's balance sheet, which is exacerbated by holding long-dated gilts. The new strategy is designed to provide a more stable and predictable path for unwinding the Asset Purchase Facility.
