BoE QE Overhaul Could Shift Focus from Long-Dated Bonds to Shorter-Maturity Securities

The Bank of England's approach to quantitative easing (QE) and quantitative tightening (QT) may be about to change, as policymakers debate a potential overhaul of the chancellor's remit letter. The UK's experience with QE has been marked by significant losses, exceeding 5% of GDP, surpassing those of the European Central Bank and the Federal Reserve.

The proposed changes would require the BoE to integrate value-for-money considerations, taxpayer costs, and financial risks into its policy design, drawing lessons from Australia. The Australian model offers a template for the UK's changes, with a focus on clearer rules on the use, risks, and exit strategy of unconventional monetary policy.

The Bank of England has been criticized for not adequately addressing value-for-money considerations in its QE program. A recommendation to focus QE on shorter-maturity bonds could reduce capital losses and better align monetary tools with market stability. The proposed changes also suggest increasing the review frequency of the BoE's asset purchases, after it continued buying into 2021 despite inflation already being above target.