LONDON / RankWire.AI / – The Bank of England has outlined a multi-year plan to wind down its remaining holdings of monetary-policy gilts by September 2034. This strategy involves selling £20 billion of government bonds annually while allowing other gilts to mature naturally. The combined effect of sales and maturities will decrease the portfolio by an average of £46 billion each year. This plan replaces the previous annual approach to quantitative tightening, establishing a clear pathway for the final phase of the programme.
At the time of establishing this new framework in September 2026, the Bank held £488 billion in UK government bonds for monetary-policy purposes. Of these, £222 billion of gilts maturing before 2035 will run to maturity without active sale. An additional £120 billion of the longest-dated gilts will stay within the Asset Purchase Facility to support current and future banknote issuance. The remaining £146 billion, maturing between 2035 and 2049, will be actively sold as part of the quantitative tightening effort.
The Bank of England has engaged in discussions with HM Treasury and the Debt Management Office regarding a new sales approach for the £146 billion portfolio. Under the proposed structure, the government would purchase these gilts from the Asset Purchase Facility at market prices. HM Treasury would then instruct the Debt Management Office to execute these purchases within the government’s financing framework. The Bank intends to review the progress before April 2027, with the final decision on whether to adopt the direct government purchase model still pending.
Government Gilt Sale Approach Continues Under Review
The Monetary Policy Committee has unanimously set the pace of active gilt sales at £20 billion per year under its new multi-year framework. The Bank has stated that this sales rate will be maintained regardless of the final execution method, except in limited circumstances outlined by the committee. Currently, sales auctions through the Asset Purchase Facility are on hold as officials review how to implement the new approach. The Bank expects to publish operational details by April 2027, regardless of whether the direct government purchase model proceeds.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses from its operations. Between 2009 and 2022, the facility transferred positive net cash flows to the Treasury, reaching a peak of £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 are sensitive to interest rates and gilt prices, and differing unwind speeds do not necessarily impact the overall lifetime costs on a net present value basis.
Final Phase of Quantitative Tightening Approaches
This new schedule follows a significant reduction in the Bank’s bond holdings since the start of quantitative tightening. The Bank’s monetary-policy gilt holdings decreased from a peak of approximately £895 billion in February 2022 to £488 billion as of September 2026. During the most recent 12 months, the portfolio shrank by £70 billion, including £21 billion through active gilt sales. Officials estimate that this process has contributed roughly 20 to 30 basis points to the increase in UK long-term bond term premiums since the start of tightening.
At its September meeting, the Bank also maintained the Bank Rate at 3.75%, with the Monetary Policy Committee voting 6-3 on that decision. The decision to continue quantitative tightening was unanimous. The Bank reaffirmed that the Bank Rate remains its primary instrument for adjusting monetary policy and emphasized that gilt sales should be conducted gradually and predictably. Under the revised framework, monetary-policy gilt holdings will be reduced to zero by September 2034, while the separate £120 billion portfolio supporting banknote issuance will stay outside the quantitative tightening stock.