BOE Faces Calls to Slow QT Amid Gilt Portfolio Shrinks to 492 Billion

The Bank of England (BOE) is facing mounting pressure to slow its quantitative tightening program as investors and economists question whether it's too aggressive. The central bank has continued to reduce its bond holdings, aiming to create room for future quantitative easing and limit interest-rate risk. However, with the UK's gilt portfolio shrinking to 492 billion pounds, rising borrowing costs, and 30-year gilt yields near levels last seen in 1998, some are calling for a slower pace.

The BOE began quantitative tightening in 2022 after accumulating 895 billion pounds of assets during the global financial crisis, Brexit, and the pandemic. Unlike other central banks, the BOE actively sells gilts, which could otherwise remain on its books for years. Market participants expect active sales to remain near 20 billion pounds, reducing the total annual runoff to around 50 billion pounds.

Some investors believe the program should be reduced further or stopped altogether. Elizabeth Martins, a senior economist at HSBC, noted that BOE analysis estimated QT had added 15-25 basis points to 10-year gilt yields, with a recent staff paper suggesting the peak effect may have reached 40 basis points.

The decision could impact gilt investors as BOE sales compete with government issuance, potentially supporting a higher-for-longer yield environment. The debate highlights the complexities of quantitative tightening and its effects on the UK bond market.