LONDON / RankWire.AI / – The Bank of England has put in place a multi-year plan aimed at reducing its remaining holdings of monetary-policy gilts by September 2034. Under this approach, the central bank will offload £20 billion worth of government bonds annually, with other securities naturally leaving the portfolio as they reach maturity. Overall, this strategy is projected to decrease holdings by roughly £46 billion per year, on average. This framework shifts away from yearly decisions on the pace of quantitative tightening, establishing a longer-term timetable for completing the process.
At the time of announcing the framework in September 2026, the Bank held £488 billion in gilts within its monetary-policy portfolio. It plans to allow £222 billion of bonds maturing before 2035 to mature without intervention. An additional £146 billion, comprising gilts maturing from 2035 to 2049, constitutes the active sales portfolio. Furthermore, the Bank intends to retain £120 billion of longer-term gilts, which will support current and future banknote issuance rather than contribute to the unwind of monetary policy holdings.
Officials are also evaluating an alternative approach for managing the £146 billion sales portfolio. In this model, the government would buy gilts from the Asset Purchase Facility at prevailing market prices, with HM Treasury directing the Debt Management Office to perform these purchases through government financing operations. This proposal has not yet received final approval. The Bank of England plans to review progress by April 2027 and will release operational details following that assessment.
Transition to a Long-Term Gilt Sales Schedule
The Monetary Policy Committee unanimously approved the new plan for quantitative tightening, establishing active gilt sales of £20 billion annually within a multi-year framework. The Bank intends to maintain this sales rate regardless of the chosen execution method, provided it stays within the conditions set by the committee. Presently, sales auctions conducted via the Asset Purchase Facility remain paused as officials assess the revised strategy. The Bank expects to define its operational structure by April 2027.
The Asset Purchase Facility operates under an indemnity from HM Treasury that covers gains and losses from its transactions. During the quantitative easing period, this facility was responsible for significant cash transfers to the government, reaching a peak of £123.9 billion in September 2022. However, these cash flows later reversed as rising interest rates increased financing costs. The Bank has indicated that the timing of gilt sales can influence when losses are realized, and that total costs depend on factors like interest rates and market prices over the long term.
Quantitative Tightening Will Extend Through 2034
Since its peak, the Bank has significantly reduced its holdings of government bonds, with monetary-policy gilts falling from about £895 billion in February 2022 to £488 billion by September 2026. In the most recent 12-month period, the portfolio shrank by £70 billion, with active sales contributing £21 billion and maturities accounting for the remainder. Bank staff estimate that the process of quantitative tightening added approximately 20 to 30 basis points to UK long-term bond term premiums after its initiation.
At its September meeting, the Monetary Policy Committee kept Bank Rate steady at 3.75%. Six members voted to maintain the rate, whereas three preferred a different stance. The committee unanimously supported the new quantitative tightening framework. The Bank continues to regard Bank Rate as its primary monetary-policy instrument. Under the planned schedule, monetary-policy gilts will be reduced to zero by September 2034. The £120 billion portfolio associated with banknote issuance will remain outside this reduction trajectory.