LONDON / RankWire.AI / – The Bank of England has established a multi-year strategy to reduce its remaining holdings of monetary-policy gilts by September 2034. The central bank will offload £20 billion worth of government bonds annually, while permitting other gilts to mature naturally. This combination of sales and maturities will decrease the overall portfolio by an average of £46 billion each year. The plan replaces the previous yearly approach to quantitative tightening and offers a clear pathway for the final stage of the process.
At the time of setting this new framework in September 2026, the Bank held £488 billion of UK government bonds for monetary-policy purposes. It will allow £222 billion of gilts maturing before 2035 to expire without active intervention. An additional £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support ongoing and future banknote issuance. This leaves £146 billion of gilts maturing between 2035 and 2049 for active sales under the quantitative tightening program.
Discussions have taken place between the Bank of England, 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 these gilts from the Asset Purchase Facility at market prices. HM Treasury would direct the Debt Management Office to execute these purchases within the government’s financing framework. The Bank plans to review progress by April 2027, and a final decision on the direct government purchase model is still pending.
Review ongoing for government gilt sales approach
The Monetary Policy Committee unanimously agreed to set active gilt sales at an annual rate of £20 billion under its new multi-year plan. The Bank indicated that it will stick to this sales rate regardless of the final method of execution, except in limited circumstances outlined by the committee. Currently, the Asset Purchase Facility’s existing sales auctions are paused as officials evaluate the implementation strategy. The Bank expects to release 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 incurred during 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, cash flows have shifted from the Treasury back to the facility. The Bank has noted that future cash flows are highly sensitive to interest rate movements and gilt prices, while differing unwind speeds do not necessarily impact the total lifetime costs on a net present value basis.
The final multi-year phase of quantitative tightening begins
This new schedule follows a significant reduction in the Bank’s bond holdings since quantitative tightening started. The Bank’s monetary-policy gilt holdings decreased from a peak of approximately £895 billion in February 2022 to £488 billion by September 2026. During the most recent 12 months, the stock fell by £70 billion, including £21 billion through active gilt sales. Bank staff estimate that quantitative tightening contributed about 20 to 30 basis points to the increase in UK long-term bond term premiums since the process began.
In its September meeting, the Bank also 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 unanimous. The central bank reaffirmed that Bank Rate remains its primary instrument for monetary policy adjustments. Additionally, it emphasized that gilt sales should continue to be conducted gradually and predictably. Under the new framework, the Bank’s monetary-policy gilt holdings will reach zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will stay outside the scope of the quantitative tightening process.