LONDON / RankWire.AI / – The Bank of England has outlined a plan to reduce its remaining holdings of monetary-policy gilts over several years, extending to September 2034. The plan involves selling £20 billion worth of government bonds annually. As other securities mature, they will leave the portfolio naturally. Overall, this approach is expected to lower holdings by roughly £46 billion each year on average. The new framework replaces yearly decisions on the pace of quantitative tightening with a longer-term schedule for completing the process.
At the time of announcing this plan in September 2026, the Bank held £488 billion of gilts in its monetary-policy portfolio. It plans to let £222 billion of bonds maturing before 2035 expire without intervention. An additional £146 billion, covering gilts maturing from 2035 to 2049, will be part of the active sales portfolio. The Bank also intends to keep £120 billion of longer-dated gilts. These securities will support current and future banknote issuance rather than be part of the unwind of monetary-policy holdings.
Officials are exploring an alternative approach for managing the £146 billion sales portfolio. Under this proposal, the government would buy gilts from the Asset Purchase Facility at market prices. HM Treasury would instruct the Debt Management Office to carry out these purchases via government financing operations. This plan has yet to receive final approval. The Bank of England will review its progress before April 2027 and will publish operational details after that assessment.
Long-Term Gilt Sales Framework Replaces Short-Term Decisions
The Monetary Policy Committee approved the new quantitative tightening strategy unanimously. The plan sets active gilt sales at £20 billion annually, following the multi-year schedule. The Bank intends to maintain this rate regardless of the final method of execution, within conditions set by the committee. Current Asset Purchase Facility auctions for sales are paused while officials evaluate the new arrangements. The Bank expects to detail its operational structure by April 2027.
The Asset Purchase Facility operates under an indemnity from HM Treasury, covering gains and losses from transactions. During the quantitative easing period, it transferred large sums to the government. These transfers peaked at £123.9 billion in September 2022. Later, cash flows reversed as higher interest rates increased financing costs. The Bank has noted that the timing of gilt sales can influence when losses are recognized. Total lifetime costs are also affected by interest rates and market prices.
Quantitative Tightening to Continue Until 2034
The Bank has already reduced its government bond holdings significantly since their peak. In February 2022, the holdings of monetary-policy gilts were close to £895 billion. By September 2026, they had fallen to £488 billion. Over the past 12 months, the portfolio shrank by £70 billion. Active gilt sales contributed £21 billion of this reduction, with the rest coming from maturities. Bank staff estimate that quantitative tightening added about 20 to 30 basis points to UK long-term bond term premiums after the process began.
The Monetary Policy Committee kept Bank Rate at 3.75% at its September meeting. Six members voted to hold the rate, while three preferred a different decision. The committee also unanimously approved the new quantitative tightening framework. The Bank continues to view Bank Rate as its primary monetary-policy tool. Under the new plan, monetary-policy gilt holdings will be reduced to zero by September 2034. The £120 billion portfolio related to banknote issuance will stay outside this reduction schedule.