Bank of England's QT Policy Costs Taxpayers Billions in Losses

The Bank of England's quantitative tightening (QT) policy has caused billions in losses for taxpayers. This is largely due to the bank selling its portfolio of gilts, which it accumulated during more than a decade of quantitative easing (QE). The QT policy aims to reduce the size of the central bank's balance sheet by selling these government bonds.

Under QE, the Bank bought up UK government debt at the rate of billions of pounds' worth a day. As a result, nearly £124 billion was transferred from the Bank's asset purchase facility to the Treasury during the long years of near-zero interest rates. However, since QT began in 2022, cumulative losses on active gilt sales have mushroomed to £36 billion.

The Treasury is now required to make good any losses on the Bank's gilt sales under an indemnity, further adding to government debt-servicing costs. Deutsche Bank estimates that reserves, excluding repo operations, are now sitting around the top end of the Bank's preferred minimum range of £365 billion to £515 billion.

The Office for Budget Responsibility (OBR) projects further losses of £94 billion in the next four years, including £22 billion of crystallised losses on active gilt sales. Many of the longer-dated gilts earmarked for sale are worth less than half what the Bank paid for them.