LONDON / RankWire.AI / – The Bank of England has laid out a strategy spanning multiple years to reduce its remaining holdings of monetary-policy gilts through September 2034. Each year, it will offload £20 billion of government bonds, while other securities will naturally exit the portfolio as they mature. This approach is designed to decrease holdings by approximately £46 billion annually on average. By replacing annual decisions with a longer-term timetable, the new framework aims to streamline the process of quantitative tightening.
At the time of announcing the framework in September 2026, the Bank held £488 billion worth of gilts in its monetary-policy portfolio. It plans to let £222 billion of bonds maturing before 2035 mature without intervention. Additionally, £146 billion, consisting of gilts maturing between 2035 and 2049, will form the active sales portfolio. The Bank also intends to retain £120 billion of longer-dated gilts, which will serve to support current and future banknote issuance rather than participate in the monetary-policy unwind.
Officials are exploring an alternative approach for managing the £146 billion sales portfolio. Under this proposed model, the government would buy gilts from the Asset Purchase Facility at market prices, with HM Treasury instructing the Debt Management Office to carry out these purchases through government financing operations. This plan has not yet received final approval. The Bank of England will review progress before April 2027 and will publish operational details following that assessment.
Gilt sales to be aligned with long-term policy framework
The Monetary Policy Committee approved the new quantitative tightening plan unanimously, setting active gilt sales at £20 billion annually under the extended schedule. The Bank intends to maintain this sales rate regardless of the final method of implementation, with limited conditions set by the committee. Currently, the Asset Purchase Facility’s sales auctions remain paused as officials evaluate the revised arrangements. The central bank plans to clarify the operational structure by April 2027.
The Asset Purchase Facility benefits from an indemnity from HM Treasury, covering gains and losses from its transactions. During the quantitative easing period, it transferred large sums to the government, reaching £123.9 billion in transfers at its peak in September 2022. Later, cash flows reversed as rising interest rates increased financing costs. The Bank has indicated that the timing of gilt sales can influence when losses manifest, and overall costs depend on market prices and prevailing interest rates over time.
Quantitative tightening to extend through 2034
Since the peak, the Bank has significantly reduced its government bond holdings. In February 2022, the monetary-policy gilt holdings neared £895 billion, but by September 2026, they had decreased to £488 billion. Over the past 12 months, the portfolio shrank by £70 billion, with active gilt sales accounting for £21 billion of that decline, and maturities making up the rest. Bank staff estimate that the tightening process added roughly 20 to 30 basis points to UK long-term bond term premiums since it started.
At its September meeting, the Monetary Policy Committee unanimously maintained the Bank Rate at 3.75%. Six members favored holding the rate steady, while three preferred a different stance. The committee also unanimously endorsed the new quantitative tightening framework. The Bank continues to regard Bank Rate as its primary monetary-policy tool. Under the revised schedule, the monetary-policy gilts will be fully exhausted by September 2034, while the separate £120 billion portfolio linked to banknote issuance will stay outside that reduction plan.