The Bank of England announced plans to unwind £368 billion of gilts held for monetary-policy purposes by September 2034. The portfolio represents holdings after the central bank separated £120 billion of longer-dated gilts to back banknotes.
The unwinding strategy combines £20 billion in annual active sales with maturing bonds, averaging £46 billion of total runoff per year. The Monetary Policy Committee approved the multi-year plan unanimously, while the bank rate remained at 3.75% with three members voting for an increase to 4%.
Implementation will begin with a pause in Asset Purchase Facility auctions while the Bank of England reviews a potential arrangement with HM Treasury and the Debt Management Office. Operational details are expected by April 2027.
The planned sales pace approximates recent practice. The bank sold £21 billion over the previous 12 months, compared with £20 billion annually under the new plan. Average total runoff fell to £46 billion from the previous year's £70 billion reduction.
Initial market reaction showed gilt yields declining. The 10-year gilt yield fell more than 7 basis points and the 30-year yield nearly 10 basis points in early trading following the announcement.
The Bank of England assessed the cumulative quantitative-tightening effect as modest in its July evaluation, estimating that QT accounted for 20 to 30 basis points of an approximately 200-basis-point rise in long-term gilt term premia since 2022. Global uncertainty, heavy sovereign issuance, and structural changes in UK demand explained most of the increase.
Quantitative tightening shifts bonds from a central bank's balance sheet toward private investors, potentially lifting the additional yield investors demand to hold longer-dated debt and tightening financial conditions even when policy rates remain unchanged.
