Bank of England's Bond Sales Spark Fury from Economists

The Bank of England's decision to sell bonds has come under fire from economists who claim it is stoking government borrowing costs and costing taxpayers billions.

The central bank has been selling off its £800 billion stockpile of gilts since the era of quantitative easing, which added to supply in the market and lowered prices. This moves inversely to yields, making long-dated bonds more expensive for the government to issue.

Economists argue that this approach is unnecessary given the US government's use of Treasury buybacks to support yields at the long end of the curve. James Carter, co-head of fixed income at W1M, said: 'The balance sheet can continue shrinking without actively selling bonds into the market.'

The Bank of England has defended its approach, citing the need to give itself firepower to launch another round of quantitative easing if needed. However, a growing number of City analysts believe that given it has shrunk the size of its balance sheet by nearly half since the programme was first launched four years ago, the central bank should end active sales.

The Bank raised its estimates of the impact of QT on long-term borrowing costs at last month's Monetary Policy Report. Officials said they now believe the programme has added up to 30 basis points, or a third of a per cent, onto the yields of long-dated bonds, and acknowledged it has 'accounted for a modest increase in long-term interest rates.'