LONDON / RankWire.AI / – Bank of England has outlined a comprehensive plan to diminish its remaining holdings of monetary-policy gilts over the next decade, extending through September 2034. The central bank intends to offload £20 billion worth of government bonds annually, with other securities exiting the portfolio as they mature. This approach will, on average, lower holdings by roughly £46 billion annually. Replacing the previous yearly decisions on quantitative tightening’s pace, this framework introduces a longer-term timetable for completing the process.
At the time of announcing the framework in September 2026, the Bank held £488 billion of gilts in its monetary-policy portfolio. It will allow bonds maturing before 2035, totaling £222 billion, to mature naturally. An additional £146 billion—covering gilts maturing between 2035 and 2049—will be actively sold off. The Bank also plans to retain £120 billion of longer-dated gilts, which will support current and future banknote issuance rather than form part of the unwind process.
The authorities are also considering an alternative method for managing the £146 billion sales portfolio. Under this potential model, the government would buy gilts from the Asset Purchase Facility at market prices, with HM Treasury instructing the Debt Management Office to carry out these transactions through government financing operations. This proposal has not yet received final approval. The Bank of England intends to review progress prior to April 2027 and will publish operational details following that assessment.
Long-term framework ushers in new gilt sale strategy
Monetary Policy Committee unanimously endorsed the revised quantitative tightening plan, establishing active gilt sales at £20 billion annually within this extended schedule. The Bank intends to maintain this sales rate regardless of the final method of implementation, with only limited conditions set by the committee. Currently, Asset Purchase Facility sales auctions remain paused as officials evaluate the new arrangements. The central bank plans to specify the operational framework by April 2027.
The Asset Purchase Facility operates under an indemnity from HM Treasury that covers gains and losses from its transactions. During the quantitative easing period, this facility generated significant cash transfers to the government, reaching a peak of £123.9 billion in September 2022. However, these cash flows reversed as higher interest rates increased financing costs. The Bank has noted that the timing of gilt sales influences when losses occur, and total lifetime costs are also affected by interest rates and market prices.
Quantitative tightening to persist through 2034
Since its peak, the Bank has substantially reduced its holdings of government bonds. As of February 2022, the monetary-policy gilt portfolio was close to £895 billion. By September 2026, that figure had decreased to £488 billion. Over the last 12 months, the portfolio contracted by £70 billion, with active gilt sales accounting for £21 billion of this reduction, and the rest coming from maturities. Bank staff estimate that the tightening process contributed approximately 20 to 30 basis points to UK long-term bond term premiums following its initiation.
During its September meeting, the Monetary Policy Committee kept the Bank Rate steady at 3.75%. Six members voted to maintain the rate, while three preferred a different approach. The committee also unanimously supported the new quantitative tightening plan. The Bank continues to regard Bank Rate as its primary monetary-policy instrument. Under the updated schedule, the holdings of gilts linked to monetary policy will be eliminated by September 2034, while the £120 billion portfolio associated with banknote issuance will stay outside that reduction plan.