Bank of England Weighs Options as Quantitative Tightening Policy Falters

The Bank of England is reassessing its quantitative tightening policy as it nears pre-pandemic balance sheet levels.

With over £400 billion in bond holdings unwound since 2022, the central bank's balance sheet is now back in line with levels seen before the Covid pandemic. This has led to a weakening of the case for continuing active quantitative tightening.

The accelerated sales of gilts have resulted in fiscal losses for the Treasury and higher UK government yields, intensifying scrutiny of the policy's future viability.

As the Bank of England prepares for its next decision on balance sheet reduction in September, some argue that passive QT may now be a more appropriate end point than continuing active sales indefinitely.