LONDON / RankWire.AI / – Bank of England has established a multi-year plan to diminish its remaining holdings of monetary-policy gilts by September 2034. The central bank intends to sell £20 billion worth of government bonds annually, while allowing others to mature naturally. Combining sales with maturities, the portfolio will shrink by an average of £46 billion each year. This strategy replaces the earlier annual approach to quantitative tightening and offers a clear pathway for the final phase of the programme.
At the time of setting the 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 intervention. An additional £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. The remaining £146 billion of gilts maturing between 2035 and 2049 will be actively sold as part of the quantitative tightening process.
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. In this proposed plan, the government would purchase gilts from the Asset Purchase Facility at market prices. HM Treasury would instruct the Debt Management Office to execute these transactions within the government’s financing framework. The Bank intends to assess progress before April 2027, and a final decision on the direct government purchase approach is still pending.
Review ongoing on government gilt sales model
Monetary Policy Committee has unanimously agreed to maintain active gilt sales at an annual rate of £20 billion under the new multi-year framework. The Bank clarified that this sales rate will be upheld regardless of the final implementation method, except under specific limited circumstances outlined by the committee. Present Asset Purchase Facility sales auctions are on hold as officials review their operational arrangements. The Bank expects to share detailed operational plans by April 2027, whether or not the direct government purchase model moves forward.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses resulting from its activities. 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 highlighted that future cash flows are highly sensitive to interest rate changes and gilt prices, and different unwinding speeds do not necessarily impact overall lifetime costs on a net present value basis.
Quantitative tightening enters its concluding multi-year phase
This new schedule follows a significant reduction in the Bank’s bond holdings since the onset of quantitative tightening. The central 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 diminished by £70 billion, including £21 billion through active gilt sales. Bank analysts estimate that quantitative tightening contributed roughly 20 to 30 basis points to the increase in UK long-term bond term premiums since the process began.
The Bank also maintained the Bank Rate at 3.75% during its September meeting, with the Monetary Policy Committee voting 6-3 on that decision. The decision to proceed with quantitative tightening was unanimous. The Bank confirmed that the Bank Rate remains its primary tool for adjusting monetary policy and emphasized that gilt sales should continue to be gradual and predictable. Under the new plan, monetary-policy gilt holdings are set to reach zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will remain outside the quantitative tightening stock.