Bank of England slows £558bn debt-sell off as gilt yields spike
QT pace trimmed to £70bn a year; Bank Rate held at 4% as long-term borrowing costs remain elevated
The Bank of England on Thursday slowed the pace of its quantitative tightening, trimming gilt sales to £70 billion over the next 12 months and leaving £488 billion on its balance sheet. The move came as long-term government borrowing costs jumped, adding pressure to Britain's public finances ahead of the chancellor's November Budget. The Monetary Policy Committee kept the Bank Rate at 4% as inflation concerns outweighed signals of weaker economic output.
In a 7-2 vote, the MPC reduced the pace of asset sales from £100 billion to £70 billion for the coming year. Long-term gilt yields have surged over the past year, with 30-year yields up about 102 basis points and 10-year yields up about 76 basis points, underscoring market sensitivity to quantitative tightening. The Bank noted that yields reflect inflation expectations and that it is selling into a relatively thin market, a situation compounded by new gilt issues to fund government priorities.
The gilt market has largely functioned in an orderly manner, the Bank said, but higher yields over the summer reflected global policy uncertainty, heavy issuance of government bonds across countries and structural changes within the UK bond market that reduced demand for long-term debt. The BoE warned that QT could pose greater risks to market functioning if these factors persist and that the central bank is prepared to adjust policy to maintain orderly conditions.
Among the dissenters, chief economist Huw Pill argued for keeping sales at £100 billion, stressing continuity in the MPC's approach amid gilt market developments that appeared largely unrelated to QT. Catherine Mann, by contrast, urged a slower pace, suggesting £62 billion would help dampen volatility and limit upward pressure on middle-tenor rates, where monetary policy transmission is typically strongest.
Markets were largely directional rather than decisive in midday trading. The 30-year gilt yield hovered around 5.42%, down 18 basis points over the past month, while the 10-year yield stood near 4.61%, down 13 basis points in the same period. The Bank’s Asset Purchase Facility balance sheet values gilts at about £558 billion, a reminder of the scale of the unwind from pandemic-era QE.
Analysts signaled that the policy shift could influence borrowing costs for the Treasury and households ahead of the Budget. Brad Holland, director of investment strategy at JPMorgan's Nutmeg, noted that the long end of the curve had steepened over the summer and that further gilt sales could widen losses and push yields higher, potentially complicating government borrowing plans. He indicated that the slowdown might tilt the balance toward lower gilt yields, but cautioned that the outcome remains uncertain and depends on ongoing market dynamics.
The BoE said the higher long-term yields observed over the summer reflected global policy uncertainty, elevated issuance of government debt worldwide and structural changes within the UK gilt market that have reduced demand for long-duration gilts. While the market had continued to function, the bank warned these factors could make QT more impactful on market functioning than previously expected. The central bank stressed that it would monitor market conditions and adjust the pace of QT if necessary to preserve financial stability and maintain orderly market functioning.
The conduct of QT matters beyond the central bank balance sheet. Slower sales can ease the pressure on long-term borrowing costs, providing some relief to the Treasury as it calibrates borrowing needs. It also influences mortgage rates and financial conditions for households and businesses, particularly as the Budget outlines spending and tax plans for the coming year. The decision thus reduces immediate pressure on the public finances ahead of the Budget while signaling the Bank’s readiness to tailor policy in response to evolving market conditions.
The Bank’s announcement comes as the government prepares for the November Budget, with Reeves seeking to balance fiscal discipline and growth-supportive measures. The BoE’s move to slow QT is part of a broader effort to normalize policy gradually while preserving financial stability and orderly function in a gilt market that has faced volatility amid shifting expectations for inflation and growth. The balance sheet remains sizable, illustrating the extent to which QE-era holdings are being unwound as the central bank gradually withdraws from its pandemic-era interventions.