LONDON / RankWire.AI / – The Bank of England has established a multi-year strategy to reduce its remaining monetary-policy gilt holdings by September 2034. The central bank will sell £20 billion worth of government bonds annually, while allowing other gilts to mature naturally. This combined approach will decrease the portfolio by an average of £46 billion each year. The new plan replaces the previous annual quantitative tightening method and sets a clear trajectory for the final stage of the programme.
At the time of establishing 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. An additional £120 billion of the longest-dated gilts will remain within the Asset Purchase Facility to support current and future banknote issuance. This leaves £146 billion of gilts maturing between 2035 and 2049 available for active sales under the quantitative tightening strategy.
Discussions have taken place between the Bank of England, HM Treasury, and the Debt Management Office regarding a new sales approach for the £146 billion portfolio. Under this proposed model, the government would acquire gilts from the Asset Purchase Facility at market prices. HM Treasury would then instruct the Debt Management Office to carry out these purchases within the government’s financing framework. The Bank intends to review the progress before April 2027, and a final decision on this direct government purchase model remains pending.
Review of government gilt sales strategy ongoing
The Monetary Policy Committee unanimously approved a steady gilt sales rate of £20 billion per year under its new multi-year plan. The Bank has stated that it will sustain this level of sales regardless of the chosen method of implementation, barring the limited circumstances outlined by the committee. While existing Asset Purchase Facility sales auctions are currently paused for review, the Bank expects to publish operational details by April 2027, whether or not the direct government purchase approach proceeds.
The Asset Purchase Facility benefits from an HM Treasury indemnity covering gains and losses from its operations. From 2009 to 2022, the facility transferred positive net cash flows to the Treasury, peaking at £123.9 billion in September 2022. Since then, the cash flows have shifted from the Treasury back to the facility. The Bank has indicated that future cash flows are sensitive to interest rates and gilt prices, and that different unwind speeds may not necessarily impact total costs on a net present value basis.
Quantitative tightening approaches its concluding phase
This new schedule follows a significant reduction in the Bank’s bond holdings since the onset of quantitative tightening. The Bank’s monetary-policy gilt holdings declined from a peak of approximately £895 billion in February 2022 to £488 billion as of September 2026. Over the past 12 months, the stock decreased by £70 billion, including £21 billion through active gilt sales. Bank analysts estimate that quantitative tightening has contributed roughly 20 to 30 basis points to the increase in UK long-term bond term premiums since the process began.
At its September meeting, the Bank held the Bank Rate steady at 3.75%, with the Monetary Policy Committee voting 6-3 on that decision. The decision to continue with quantitative tightening was made unanimously. The Bank emphasized that Bank Rate remains its primary instrument for adjusting monetary policy and that gilt sales should proceed gradually and predictably. Under the new plan, the Bank’s monetary-policy gilt holdings will reach zero by September 2034, while the £120 billion portfolio supporting banknote issuance will remain outside the scope of the quantitative tightening process.