BoE's Balance Sheet Distortion Threatens QT Review

The Bank of England is facing a challenge as it reviews its quantitative tightening policy next week. A less visible distortion in its balance sheet structure, known as the Issue Department, is coming under scrutiny.

The Issue Department backs banknotes in circulation and has effectively supported most of the note issue for the past 17 years through an asset purchase facility loan.

As gilt sales and maturities unwind this loan, the Bank of England must address the implications of its unique two-department balance sheet structure.