LONDON / RankWire.AI / – The Bank of England has laid out a multi-year strategy to gradually reduce its remaining holdings of monetary-policy gilts through September 2034. The central bank will offload £20 billion of government bonds each year, while other securities will naturally leave the portfolio as they mature. This approach aims to decrease holdings by approximately £46 billion annually on average. Replacing the previous annual decisions on the pace of quantitative tightening, this framework extends the timetable for completing the unwind process.
At the announcement of this plan in September 2026, the Bank’s monetary-policy portfolio held £488 billion of gilts. It plans to let £222 billion of bonds maturing before 2035 mature without intervention. Additionally, the Bank will actively sell £146 billion worth of gilts maturing from 2035 to 2049, which comprises the active sales portfolio. The institution also intends to retain £120 billion of longer-term gilts, which will support current and future banknote issuance rather than contribute to the monetary-policy reduction.
Officials are exploring an alternative method for managing the £146 billion sales portfolio. Under this potential model, the government would buy gilts from the Asset Purchase Facility at market value. HM Treasury would instruct the Debt Management Office to execute these purchases through government financing operations. This plan has not yet received final approval. The Bank of England will review progress before April 2027 and will release operational details following that review.
Long-term framework guides gilt sales
The Monetary Policy Committee unanimously approved the new quantitative tightening plan, establishing annual gilt sales at £20 billion under this extended schedule. The Bank intends to maintain this sales pace regardless of the final method of execution, within the limited conditions set by the committee. Currently, Asset Purchase Facility auctions remain paused while officials evaluate the revised approach. The central bank expects to disclose operational details by April 2027.
The Asset Purchase Facility benefits from an indemnity from HM Treasury covering gains and losses from its transactions. During the quantitative easing period, this facility transferred substantial sums to the government, reaching a peak of £123.9 billion in September 2022. As interest rates increased, higher financing costs reversed these cash flows. The Bank has indicated that the timing of gilt sales influences when losses occur, and overall lifetime costs depend on prevailing interest rates and market prices.
Quantitative tightening to extend through 2034
Since early 2022, the Bank has significantly reduced its government bond holdings, which peaked at around £895 billion. By September 2026, this figure had fallen to £488 billion. Over the past 12 months, the portfolio shrank by £70 billion, with active gilt sales accounting for £21 billion of that decline, and maturities making up the remainder. Bank staff estimate that the process of quantitative tightening has added roughly 20 to 30 basis points to UK long-term bond term premiums since its initiation.
At its September meeting, the Monetary Policy Committee maintained the Bank Rate at 3.75%. Six members voted to keep the rate unchanged, while three preferred a different stance. The committee unanimously endorsed the new quantitative tightening framework. The Bank continues to regard Bank Rate as its primary monetary-policy instrument. Under the revised schedule, the Bank’s holdings of monetary-policy gilts will be reduced to zero by September 2034. Meanwhile, the £120 billion portfolio linked to banknote issuance will remain outside this reduction trajectory.
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