Key points

  • The Bank of England will unwind its remaining £488 billion gilt portfolio at an average £46 billion a year through 2034.
  • It will hold £222 billion to maturity, retain £120 billion to back banknotes and plan the unwind of a further £146 billion.
  • Existing gilt-sale auctions are paused while the Bank and the U.K. government review a direct-sale model for the £146 billion block.

The Bank of England has suspended its government-bond sale auctions while it redesigns the final phase of quantitative tightening, setting out a multi-year plan for the £488 billion of gilts still held in its Asset Purchase Facility. The Monetary Policy Committee voted unanimously to reduce the monetary-policy portfolio to zero by the end of 2034, at an average pace of £46 billion a year through a combination of maturities and planned sales.

Three routes for the remaining portfolio

The Bank divided the holdings into three broad groups. About £222 billion of gilts maturing before 2035 will be held until they mature. Another £120 billion of the longest-dated bonds will also remain in the facility and be held to maturity, indirectly backing current and future banknote issuance. That group includes part of the 1.75% 2049 gilt and all holdings that mature after 2049.

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A new option for £146 billion of gilts

The remaining £146 billion, measured at original purchase proceeds, consists of gilts maturing from 2035 through 2049. The Bank said it is working with HM Treasury and the Debt Management Office on a model under which those securities could be sold to the government at market prices on a pre-announced schedule. The proposed annualized pace is £20 billion, with the sales intended to finish around the same time as the shorter-dated holdings mature in 2034.

Auctions pause during the review

Regular Asset Purchase Facility gilt auctions will pause while officials evaluate the government-sale model. The Bank plans to review progress before April 2027 and publish operational details by that month, whether or not it proceeds with direct sales to the government. Reuters independently reported the auction pause and the revised treatment of long-dated holdings, describing the decision as a significant change to the Bank's approach to unwinding quantitative easing.

Why the structure matters

Quantitative tightening removes bonds acquired during earlier rounds of monetary stimulus from the central bank's balance sheet. Active sales add securities to the market, while allowing bonds to mature reduces the portfolio without a new auction. The balance between those methods can affect the supply that private investors must absorb, particularly for long-dated gilts, where prices and yields have been volatile. The Bank said the revised design should preserve its monetary-policy objective while using a more predictable path. It will continue making the full gilt portfolio available for borrowing through the existing APF lending facility.

Bank Rate held as inflation risks rise

The balance-sheet decision accompanied a separate vote to keep Bank Rate at 3.75%. Six members favored no change and three preferred a quarter-point increase. The committee said U.K. consumer-price inflation had risen to 3.1% in August and could climb further, with risks tilted upward because of higher and more volatile energy prices. The rate decision and the gilt plan are related parts of monetary policy, but the Bank presented them as distinct votes.

What remains unresolved

The direct-sale mechanism for the £146 billion portfolio is still under review, so its operational terms are not final. Details still to be settled include the transaction schedule and how purchases would be incorporated into the government's annual financing remit. Markets will also watch whether the slower, longer unwind changes gilt liquidity or borrowing costs, but the announcement does not guarantee a particular yield outcome.

Sources

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