LONDON / RankWire.AI / – The Bank of England has devised a multi-year plan to gradually reduce its remaining holdings of monetary-policy gilts by September 2034. The central bank intends to sell £20 billion of government bonds annually, while allowing other gilts to mature naturally. Combining these sales with maturities, the portfolio is set to shrink by an average of £46 billion each year. This plan replaces the previous yearly approach to quantitative tightening and lays out a clear route for the program’s concluding phase.
As of September 2026, the Bank held £488 billion in UK government bonds for monetary policy purposes when it established this new framework. Of these, £222 billion of gilts maturing before 2035 will be allowed to run to their maturity date. An additional £120 billion worth of the longest-dated gilts will remain within the Asset Purchase Facility to support current and future banknote issuance. The remaining £146 billion of gilts maturing between 2035 and 2049 are designated for active sales under the quantitative tightening scheme.
The Bank of England has been in discussions with HM Treasury and the Debt Management Office regarding a new sales model for the £146 billion portfolio. In this proposed setup, the government would purchase gilts from the Asset Purchase Facility at prevailing market prices. HM Treasury would then direct the Debt Management Office to execute these purchases as part of the government’s financing plans. The Bank plans to review the progress of this initiative before April 2027, and a final decision on adopting the direct government purchase approach is still pending.
Review ongoing for government gilt sales approach
The Monetary Policy Committee has unanimously committed to a yearly gilt sale rate of £20 billion under its new multi-year framework. The Bank has affirmed that it will continue this sale pace regardless of the method used to carry it out, except under specific limited circumstances outlined by the committee. While the Asset Purchase Facility’s current sales auctions are on hold, officials are reviewing how best to implement the plan. Details about operational procedures are expected to be published by April 2027, regardless of whether the direct government purchase model advances.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses from its activities. Between 2009 and 2022, the facility transferred positive net cash flows to the Treasury, reaching a peak of £123.9 billion in September 2022. Since then, cash flows have shifted from the Treasury back to the facility. The Bank has noted that future cash flows will remain sensitive to interest rate fluctuations and gilt prices, but different unwind speeds do not necessarily alter the total costs over the lifetime when assessed on a net present value basis.
Final phase of quantitative tightening underway
This new timetable follows a significant reduction in the Bank’s bond holdings since the start of quantitative tightening, with the monetary-policy gilt portfolio decreasing from approximately £895 billion in February 2022 to £488 billion by September 2026. Over the last 12 months alone, the portfolio shrank by £70 billion, including £21 billion from active gilt sales. Bank officials estimate that the process contributed roughly 20 to 30 basis points to the rise in UK long-term bond term premiums since the tightening began.
At its September meeting, the Bank maintained the Bank Rate at 3.75%, with the Monetary Policy Committee voting 6-3 on that decision. The decision to continue quantitative tightening was unanimous. The central bank emphasized that the Bank Rate remains its primary instrument for monetary policy adjustments, and that gilt sales should proceed gradually and predictably. Under the revised framework, the Bank intends to reduce its monetary-policy gilt holdings to zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will remain outside the scope of the quantitative tightening process.