LONDON / RankWire.AI / – The Bank of England has introduced a multi-year plan aimed at gradually reducing its remaining holdings of monetary-policy gilts, with a timeline extending through September 2034. Under this plan, the central bank will sell £20 billion of government bonds each year, while maturing securities will leave the portfolio naturally. The combined annual effect is expected to decrease holdings by roughly £46 billion on average. This new framework replaces the previous approach of making annual decisions on the pace of quantitative tightening, opting instead for a longer-term schedule for completing the unwind process.
At the time of announcing this framework in September 2026, the Bank held £488 billion of 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, consisting of gilts maturing from 2035 through 2049, will be actively sold as part of the new sales program. The Bank also intends to retain £120 billion of longer-dated gilts, which will support the issuance of current and future banknotes rather than contribute to the monetary-policy reduction process.
Furthermore, officials are exploring an alternative method for managing the £146 billion of gilts slated for sale, whereby the government could purchase these securities from the Asset Purchase Facility at prevailing market prices. Under this proposed arrangement, HM Treasury would instruct the Debt Management Office to acquire the gilts through government financing operations. This plan has not yet received final approval, but the Bank of England will review progress before April 2027 and will publish operational details following that review.
Shift Toward a Long-Range Gilt Sales Framework
The Monetary Policy Committee unanimously endorsed the new quantitative tightening strategy, establishing a firm schedule of active gilt sales at £20 billion annually in line with the multi-year plan. The Bank intends to maintain this rate of sales regardless of the chosen implementation method, with only limited conditions set by the committee. While current Asset Purchase Facility sales auctions remain paused as officials evaluate the new arrangements, the Bank expects to reveal the operational structure by April 2027.
The Asset Purchase Facility benefits from an indemnity from HM Treasury covering gains and losses from its transactions, which previously resulted in substantial cash transfers to the government during the quantitative easing phase, reaching a peak of £123.9 billion in September 2022. However, these cash flows reversed later due to higher interest rates increasing financing costs. The Bank has indicated that the timing of gilt sales can influence when losses are recognized, and overall lifetime costs are affected by prevailing interest rates and market prices.
Quantitative Tightening Set to Continue Through 2034
Since the peak, the Bank has significantly reduced its holdings of government bonds, with monetary-policy gilt holdings dropping from nearly £895 billion in February 2022 to £488 billion as of September 2026. Over the most recent 12 months, the portfolio contracted by £70 billion, with active gilt sales accounting for £21 billion of that decrease, while maturities contributed the rest. Analysts estimate that this quantitative tightening has increased the long-term bond term premiums in the UK by approximately 20 to 30 basis points since the process began.
At its September meeting, the Monetary Policy Committee unanimously decided to keep the Bank Rate at 3.75%, with six members voting to maintain the rate and three preferring an alternative. The committee also reaffirmed its support for the new quantitative tightening framework. The Bank continues to regard Bank Rate as its primary tool for monetary policy. Under the revised schedule, the Bank intends to have its monetary-policy gilt holdings reduced to zero by September 2034, leaving the £120 billion portfolio related to banknote issuance outside of this reduction plan.