Bank of England to slow bond sales pace

The Bank of England is expected to slow the pace of reducing its government‑bond holdings this week while keeping its main interest rate on hold. Since 2022, the central bank has been cutting its gilt portfolio by about $100 billion a year, shrinking the total from $1.2 trillion to $760 billion. Although the Bank believes that the speed of quantitative tightening has little impact on the broader economy, markets watch it closely, with some attributing higher British government borrowing costs to the policy.

The Bank of England is unique among major central banks because it conducts outright sales of government bonds rather than simply allowing them to mature. From 2022 to the present, it has reduced gilt holdings by $440 billion, including $100 billion in the past year alone. A Reuters poll of economists suggests that the Monetary Policy Committee will now slow the reduction to a median of $67.5 billion per year.

British 30‑year government‑bond yields have risen to their highest level since 1998, and new 10‑year debt has been sold at the highest yield since 2008, putting pressure on Finance Minister Rachel Reeves ahead of her November 26 budget. Nonetheless, the Bank estimated last month that its quantitative tightening has added only 0.15–0.25 percentage points to government borrowing costs.

The Bank’s objective is to remove excess cash that accumulated in Britain’s financial system during quantitative easing, but the neutral level of holdings remains uncertain. A Bank survey of banks gave a range of $420‑$580 billion, compared with the current $760 billion. To end active sales entirely and rely solely on gilts maturing, the Bank would need to cut the pace of quantitative tightening to $49 billion per year.

The decision comes as British inflation remains high at 3.8 % in July—the highest among the Group of Seven advanced economies. The Bank of England cut rates for the fifth time in just over a year last month, but only by a narrow five‑four margin. The Monetary Policy Committee’s stance on quantitative tightening will be closely watched by financial markets and will have significant implications for the British economy.