LONDON / RankWire.AI / – The Bank of England has outlined a multi-year strategy to reduce its remaining monetary-policy gilt holdings by September 2034. The central bank will offload £20 billion of government bonds annually, while allowing other gilts to mature naturally. This combined approach of sales and maturities will decrease the portfolio by an average of £46 billion each year. The new plan supersedes the previous annual quantitative tightening method and establishes a clear pathway for the final phase 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 allow £222 billion of gilts maturing before 2035 to reach maturity without intervention. Additionally, £120 billion worth of the longest-dated gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. This leaves £146 billion of gilts maturing between 2035 and 2049 designated for active sales under the quantitative tightening initiative.
The Bank of England has engaged in discussions with HM Treasury and the Debt Management Office regarding a new sales model for the £146 billion portfolio. Under the proposed plan, the government would acquire the gilts from the Asset Purchase Facility at current market prices. HM Treasury would direct the Debt Management Office to undertake these purchases within the government’s financing framework. The Bank intends to review the progress before April 2027, and a final decision on the direct government purchase approach is still pending.
Review ongoing for government gilt sales strategy
The Monetary Policy Committee unanimously decided to set active gilt sales at an annual rate of £20 billion under its new multi-year framework. The Bank confirmed it will sustain this sales pace regardless of the final execution method, except in limited circumstances outlined by the committee. Currently, sales via existing Asset Purchase Facility auctions are paused as officials examine implementation procedures. The Bank expects to release operational details by April 2027, whether or not the direct government purchase model moves forward.
The Asset Purchase Facility is backed by an HM Treasury indemnity covering gains and losses from its activities. Between 2009 and 2022, the facility transferred positive net cash flows 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 has highlighted that future cash flows remain highly sensitive to interest rates and gilt prices, and different unwind speeds do not necessarily influence the total lifetime costs on a net present value basis.
The final multi-year phase of quantitative tightening is underway
This schedule follows a significant reduction in the Bank’s bond holdings since the onset of quantitative tightening, with the monetary-policy gilt holdings dropping from a peak of around £895 billion in February 2022 to £488 billion by September 2026. Over the past 12 months, the total declined by £70 billion, including £21 billion from active gilt sales. Bank staff estimate that the process contributed approximately 20 to 30 basis points to the increase in UK long-term bond term premiums since the start of tightening.
In its September meeting, the Bank maintained the Bank Rate at 3.75%, with the Monetary Policy Committee voting 6-3 on that decision. The decision to proceed with quantitative tightening was made unanimously. The Bank reiterated that Bank Rate remains its primary instrument for monetary policy adjustments and emphasized that gilt sales should proceed gradually and predictably. Under the new plan, holdings of monetary-policy gilts will be reduced to zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will stay outside the quantitative tightening process.