LONDON / RankWire.AI / – The Bank of England has established 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 worth of government bonds each year while allowing other gilts to mature naturally. By combining sales and maturities, the portfolio will shrink by an average of £46 billion annually. This approach replaces the previous annual method of quantitative tightening and offers a clear pathway for the programme’s final phase.
At the time of setting the new framework in September 2026, the Bank held £488 billion of UK government bonds for monetary policy purposes. It plans to allow £222 billion of gilts maturing before 2035 to reach their maturity date. An additional £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support both current and future banknote issuance. Consequently, £146 billion of gilts maturing between 2035 and 2049 will be actively sold under the quantitative tightening programme.
The Bank of England has engaged in discussions with HM Treasury and the Debt Management Office regarding a new sales model for the £146 billion portfolio. Under this proposed scheme, the government would purchase gilts from the Asset Purchase Facility at market prices, with HM Treasury instructing the Debt Management Office to carry out these purchases within the government’s financing framework. The Bank plans to review the progress before April 2027, but a final decision on the direct government purchase model has yet to be made.
Review continues on the government gilt sales approach
The Monetary Policy Committee unanimously approved a schedule of active gilt sales at a rate of £20 billion annually as part of its new multi-year plan. The Bank indicated that this sales pace will be maintained regardless of the final method of execution, except in limited circumstances specified by the committee. Present Asset Purchase Facility sales auctions are currently on hold as officials review how to implement the process. The Bank expects operational details to be published by April 2027, whether or not the direct purchase model proceeds.
The Asset Purchase Facility benefits from an indemnity provided by HM Treasury, covering any gains or losses incurred during its operations. Between 2009 and 2022, the facility transferred positive net cash flows to the Treasury, peaking at £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 rates and gilt prices, and different unwind speeds do not necessarily influence the total cost over the lifetime on a net present value basis.
The final multi-year phase of quantitative tightening underway
This new timetable follows a significant reduction in the Bank’s bond holdings since the onset of quantitative tightening. From a peak of approximately £895 billion in February 2022, the Bank’s monetary-policy gilt holdings decreased to £488 billion by September 2026. Over the past 12 months alone, the stock diminished by £70 billion, including £21 billion through active gilt sales. According to Bank staff estimates, quantitative tightening contributed roughly 20 to 30 basis points to the increase in UK long-term bond term premiums since the process began.
The Bank also maintained Bank Rate at 3.75% during its September meeting, with the Monetary Policy Committee voting 6-3 in favor of that decision. The decision to continue with quantitative tightening was made unanimously. The central bank reaffirmed that Bank Rate remains its primary tool for monetary policy adjustments and emphasized that gilt sales should be conducted in a gradual and predictable manner. Under the new framework, all monetary-policy gilts will be fully unwound by September 2034, while the separate £120 billion portfolio supporting banknote issuance will stay outside the scope of the quantitative tightening process.