LONDON / RankWire.AI / – The Bank of England has established a multi-year strategy to wind down its remaining holdings of monetary-policy gilts by September 2034. The central bank intends to offload £20 billion of government bonds annually while allowing others to mature, resulting in an average annual portfolio reduction of £46 billion through sales and maturities. This new plan replaces the previous yearly approach to quantitative tightening and delineates a clear course for the program’s concluding phase.
At the time of the new framework’s adoption 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 mature naturally, while £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support the current and future issuance of banknotes. Consequently, £146 billion of gilts maturing between 2035 and 2049 will be actively sold 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 approach for the £146 billion portfolio. Under this proposed plan, the government would purchase the gilts from the Asset Purchase Facility at prevailing market prices. HM Treasury would instruct the Debt Management Office to execute these purchases within the government’s financing framework. The Bank will assess progress before April 2027, and a final decision on the direct government purchase model remains pending.
Review Underway for Government Gilt Sales Strategy
The Monetary Policy Committee unanimously approved active gilt sales at a rate of £20 billion annually under the new multi-year framework. The Bank indicated it will continue this sales pace regardless of the eventual method of execution, within the limited conditions specified by the committee. Sales from the existing Asset Purchase Facility auctions are currently paused as officials review the implementation plan. The Bank expects to disclose operational details by April 2027, regardless of whether the direct government purchase model proceeds.
The Asset Purchase Facility benefits from an HM Treasury indemnity covering gains and losses from its operations. Between 2009 and 2022, the facility transferred net positive 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 has emphasized that future cash flows will remain sensitive to interest rates and gilt prices, and that different unwind speeds do not necessarily impact total costs on a net present value basis.
Final Phase of Quantitative Tightening Begins
This new timetable follows a significant reduction in the Bank’s bond holdings since the start of quantitative tightening. From a peak of approximately £895 billion in February 2022, the Bank’s monetary-policy gilt portfolio decreased to £488 billion by September 2026. Over the last 12 months, the stock declined by £70 billion, including £21 billion through active gilt sales. Bank staff estimate that the tightening process has contributed approximately 20 to 30 basis points to the increase in UK long-term bond term premiums since its inception.
The Bank also maintained the Bank Rate at 3.75% during its September meeting, with the Monetary Policy Committee voting 6-3 on this decision, while the quantitative tightening decision was unanimous. The central bank reiterated that Bank Rate remains its primary tool for adjusting monetary policy and that gilt sales should proceed in a gradual and predictable manner. Under the new plan, monetary-policy gilt holdings will reach zero by September 2034, with the separate £120 billion portfolio supporting banknote issuance remaining outside the quantitative tightening stock.