Bank of England signal to slow gilt sales could ease Chancellor’s fiscal squeeze

The Bank of England is poised to slow the pace of its gilt sales, a decision that could give Chancellor Rachel Reeves a narrow fiscal reprieve by reducing losses on government debt disposals that are currently cutting into Treasury resources.

Officials and market observers expect the Bank to announce on Thursday whether it will ease the programme of quantitative tightening (QT) that has seen it sell roughly £100 billion of bonds a year since 2022. The sales have crystallised mark-to-market losses because the debt was bought at much higher prices during the post-2008 quantitative easing period and interest rates have since risen sharply.

The Bank purchased about £895 billion of government and corporate bonds after the 2008 financial crisis to support markets and monetary policy. Under current accounting arrangements, any profit from the disposal of gilts is passed to the Treasury, while any losses are borne by the public purse. Those losses are currently estimated to be about £22 billion a year and are adding to the Chancellor’s task of finding savings ahead of the Autumn Budget in November.

Independent analysts and think-tanks have urged the Bank to slow sales to limit the drain on public finances. The Institute for Public Policy Research (IPPR) said the scale of annual losses meant the policy that once supported the economy had become "a massive drain on taxpayer money," a comment linked to IPPR analyst Carsten Jung.

City economists say the sales rate could be reduced from the current pace of about £100 billion a year to nearer £70 billion a year, which would lower the rate at which losses are realised. That change, if approved by the Bank’s policy committees, would not reverse QT but would spread disposals over a longer period, reducing immediate fiscal costs.

The Bank of England is operationally independent from the government, and the decision will be weighed against monetary policy objectives and financial-stability considerations. Some economists warn that altering QT to ease short-term fiscal pressures risks blurring the boundary between monetary policy and fiscal management. "Some would see this as a slippery slope," said David Aikman, director at the National Institute of Economic and Social Research. "Once QT is adjusted to ease fiscal pressures, where does it stop?"

The timing of any change could also affect market expectations for interest rates. The Bank is widely expected to hold Bank Rate at 4 percent at the forthcoming meeting, and hopes for a rate cut before Christmas have dimmed as inflation has proven more persistent than some forecasts anticipated. Slowing gilt sales could be presented as a technical adjustment to QT rather than a shift in monetary policy stance, but markets will scrutinise the move for any signal about future rate decisions.

For Chancellor Reeves, any reduction in annual losses would provide limited but tangible breathing space as she prepares a budget against a backdrop of stalling growth and rising borrowing costs. Government forecasts have suggested the public finances may face a gap of up to £50 billion, prompting pressure for further spending reductions or tax measures.

Officials at the Bank have previously defended QT as part of a strategy to normalise the central bank’s balance sheet after extraordinary crisis-era purchases. Officials note that the pace of sales has to balance that objective with market functioning and macroeconomic conditions. Adjustments to the programme, if made, will be couched in technical terms and linked to the Bank’s remit to maintain monetary and financial stability.

The Bank’s announcement on Thursday will be watched closely by ministers, investors and economists for the precise terms of any slowdown, the projected impact on recorded losses, and the implications for the timing of future rate moves. Any change would not eliminate the liability for past losses but could reduce the rate at which additional losses are crystallised into the public accounts.

Beyond the immediate fiscal mechanics, the debate over QT underscores a broader policy tension: how central banks unwind crisis-era interventions without unduly complicating governments’ fiscal positions. That tension is set to animate political and market discussions as the UK heads into a challenging budget round in November.