Bank of England Tightens Quantitative Tightening Estimate

The Bank of England has revised its estimate on the impact of quantitative tightening (QT) on UK gilts, placing the cumulative effect at 20 to 30 basis points.

This updated range brings the central bank closer in line with a September 2022 survey of market participants, which estimated a similar impact. However, it still falls below some academic estimates, such as those from Joyce and Lengyel, who predicted an impact of up to 100 basis points in stressed scenarios.

The revised estimate implies that HM Treasury will incur additional costs of around £3.4 billion due to higher gilt yields from 2023-24 to 2026-27, based on a simplified cash-flow approach. However, the Bank notes that broader monetary policy interactions and effect duration remain uncertain.