LONDON / RankWire.AI / – The Bank of England has announced a multi-year strategy to wind down its remaining holdings of monetary-policy gilts by September 2034. Under this plan, the bank will offload £20 billion worth of government bonds each year, while allowing other gilts to mature naturally. This combined approach of sales and maturities will decrease the bank’s portfolio by an average of £46 billion annually. The new plan replaces the previous yearly method of quantitative tightening, providing a clear roadmap for the final phase of the process.
At the time of establishing the new framework in September 2026, the Bank held £488 billion of UK government bonds for monetary-policy objectives. It intends to let £222 billion of gilts maturing before 2035 reach maturity. Additionally, £120 billion 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 plan.
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. In this proposed framework, the government would purchase gilts from the Asset Purchase Facility at prevailing market prices. HM Treasury would instruct the Debt Management Office to execute these acquisitions within the government’s financing arrangements. The Bank will assess 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 agreed to set active gilt sales at a rate of £20 billion per year under its new multi-year plan. The Bank clarified that this sales pace will be maintained regardless of the chosen implementation method, except in limited circumstances outlined by the committee. Currently, auctions for existing Asset Purchase Facility sales are paused as officials review the implementation process. The Bank anticipates releasing operational details by April 2027, regardless of whether the direct government purchase model moves forward.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses arising from its operations. From 2009 to 2022, the facility transferred positive net cash flows to the Treasury, reaching a peak of £123.9 billion in September 2022. Since then, cash flows have shifted from the Treasury back to the facility. The Bank noted that future cash flows remain sensitive to interest rate fluctuations and gilt prices, and different unwind speeds do not necessarily alter the total lifetime costs on a net present value basis.
Final multi-year phase of quantitative tightening underway
This new schedule follows a significant reduction in the Bank’s bond holdings since the start of quantitative tightening, when holdings peaked at around £895 billion in February 2022. By September 2026, the portfolio had decreased to £488 billion. During the past 12 months, the stock declined by £70 billion, including £21 billion from active gilt sales. Bank officials estimate that the process of quantitative tightening contributed about 20 to 30 basis points to the increase in UK long-term bond term premiums since its initiation.
At 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 pursue quantitative tightening was made unanimously. The Bank reaffirmed that the Bank Rate remains its primary tool for monetary policy adjustments and emphasized that gilt sales should proceed in a gradual and predictable manner. Under the new framework, monetary-policy gilt holdings are scheduled to fall to zero by September 2034, while the separate £120 billion portfolio supporting banknotes will stay outside the quantitative tightening process.