Bank of England Axes Public Bond Sales in Sweeping QT Overhaul

The Bank of England has made a significant overhaul to its quantitative tightening (QT) program, which aims to reduce the central bank's vast stockpile of bonds accumulated during the 2008 financial crisis.

In 2021, the Bank of England had amassed a gilt portfolio totaling £895 billion, mostly taken on during Covid. Since then, officials have been unwinding this process through a combination of letting shorter-dated bonds mature naturally and selling gilts onto the public bond markets at a pre-determined cadence.

However, this approach became increasingly contentious due to its 'active' stance, which added to the supply of gilts on the market, pushing down their price and up their yield. Analysts accused the Bank of recklessly driving up borrowing costs for the Treasury and costing taxpayers hundreds of billions of pounds.

On Thursday, the Bank announced a radical change to this balance sheet strategy, proposing to axe public sales and replace them with a three-pronged approach that will take it all the way to 2035. This includes halting all sales of its longest-dated bonds, allowing gilts due to mature before 2035 to roll off its balance sheet organically, and selling the remaining £146 billion worth of gilts directly to the Treasury at a pace of £20 billion a year.

The proposal has been met with praise from analysts and markets alike, but it has also raised questions about the Bank's independence. The move is seen as a significant change in approach, which could have far-reaching implications for the economy and the public purse.