LONDON / RankWire.AI / – The Bank of England has outlined a multi-year plan to gradually unwind its remaining monetary-policy gilt holdings by September 2034. The central bank intends to sell £20 billion worth of government bonds annually, while allowing other gilts to mature naturally. This combined approach will reduce the total portfolio by an average of £46 billion each year. The new plan replaces the previous yearly approach to quantitative tightening and offers a clear roadmap for the final phase of the process.
As of September 2026, the Bank held £488 billion of UK government bonds for monetary-policy purposes when the new framework was established. It will allow £222 billion of gilts maturing before 2035 to mature without intervention. An additional £120 billion of the longest-term gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. This leaves £146 billion of gilts maturing between 2035 and 2049, which will be actively sold under the quantitative tightening plan.
Discussions around a new sales approach have taken place between the Bank of England, HM Treasury, and the Debt Management Office concerning the £146 billion portfolio. Under this proposed model, the government would purchase these gilts from the Asset Purchase Facility at prevailing market prices. HM Treasury would direct the Debt Management Office to execute these purchases within the government’s financing framework. The Bank plans to review its progress before April 2027, and a final decision on the direct government purchase model remains pending.
Review ongoing for government gilt sales approach
The Monetary Policy Committee has unanimously approved active gilt sales at a rate of £20 billion annually within its new multi-year strategy. The Bank has stated that it will maintain this sales pace regardless of the specific implementation method, except under the limited circumstances outlined by the committee. While existing Asset Purchase Facility auctions are currently paused as officials evaluate the operational arrangements, the Bank expects to publish further details by April 2027, irrespective of whether the direct government purchase approach proceeds.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses from its operations. From 2009 to 2022, it transferred positive net cash flows to the Treasury, reaching a maximum of £123.9 billion in September 2022. Since then, cash flows have shifted from the Treasury back to the facility. The Bank has highlighted that future cash flows are highly sensitive to fluctuations in interest rates and gilt prices, and varying unwind speeds do not necessarily alter the total costs on a net present value basis.
Final phase of quantitative tightening begins
The revised schedule 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 year, the portfolio shrank by £70 billion, including £21 billion through active gilt sales. Officials estimate that the process of quantitative tightening contributed around 20 to 30 basis points to the increase in UK long-term bond term premiums since its initiation.
At its September meeting, the Bank maintained the Bank Rate at 3.75%, with a 6-3 vote in favor of the rate decision. The decision to continue quantitative tightening was unanimous. The Bank reaffirmed that the Bank Rate remains its primary tool for steering monetary policy and emphasized that gilt sales should proceed gradually and predictably. Under the new framework, the Bank’s holdings of monetary-policy gilts will be eliminated by September 2034, while the separate £120 billion portfolio supporting banknote issuance will stay outside the quantitative tightening process.