Former members of the Bank of England’s monetary policy committee (MPC) have urged governor Andrew Bailey to ease pressure on government borrowing costs by scaling back or halting the central bank’s bond-selling programme.
Britain’s long-term borrowing costs have reached a 27-year high, intensifying pressure on chancellor Rachel Reeves ahead of her autumn budget on 26 November. While global factors such as Donald Trump’s trade war and tensions over the US Federal Reserve are cited, the Bank acknowledged that its £100bn programme to unwind crisis-era quantitative easing (QE) is also contributing.
The Bank is expected to maintain its base rate at 4% but may signal a slowdown in quantitative tightening (QT) over the next year. Michael Saunders, a former MPC member, said the current pace of sales could push yields higher, while Sushil Wadhwani called for halting active sales entirely, recommending passive QT instead. Andrew Sentance agreed that reducing QT to around £70bn was sensible but emphasized the Bank’s priority remains inflation control.
The Bank’s QE portfolio, originally expanded to £895bn, has shrunk by about £100bn through sales and non-replacement of maturing debt, leaving £560bn in holdings, many sold at a loss. Scaling back QT could relieve pressure on gilt yields and save the Treasury up to £10bn a year, according to the IPPR thinktank, though the Bank would earn less interest on retained bonds than it pays on commercial bank reserves.
Investors widely expect QT to be reduced to £70bn in the year ahead, though this may still involve active sales at current levels due to fewer maturing gilts. The Bank’s move comes amid a busy week for economic data on employment and inflation as the government prepares its budget.
