Bank of England Quantitative Tightening Faces Scrutiny Over Taxpayer Costs

The Bank of England's quantitative tightening approach is facing scrutiny due to its high fiscal cost to UK taxpayers. According to reports, losses from the BoE's asset purchase programmes have exceeded £250 billion, which amounts to over 5% of the country's GDP.

For context, this is roughly twice the cost incurred by the European Central Bank and four times that of the Federal Reserve.

The issue at hand is the BoE's decision to actively sell bonds as it unwinds quantitative easing. This has put additional pressure on the gilt market, prompting questions about whether the framework for using and exiting unconventional monetary policy should be updated.

As policymakers weigh changes to the BoE's approach, they may look to Australia's recent reforms as a template for clarification. The Reserve Bank of Australia's yield curve control policy ended in 2021 with an orderly unwind, leading to a set of reforms introduced last year that govern the RBA's monetary policy process.

The UK's policymakers are expected to refresh the BoE's remit letter in the autumn, which could bring about changes to the central bank's approach to quantitative tightening.