By Eniola Amadu
Andrew Bailey, the governor of the Bank of England, has come under renewed pressure from former policymakers to reduce the pace of bond sales to ease the strain on government borrowing costs.
Four former members of the Bank’s monetary policy committee (MPC) have warned that the central bank’s £100bn quantitative tightening (QT) programme is contributing to instability in financial markets and exacerbating pressure on the Treasury ahead of Chancellor Rachel Reeves’ autumn budget on 26 November.
The intervention comes as Britain’s long-term borrowing costs have climbed to their highest level in 27 years.
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Threadneedle Street has attributed much of the rise to global factors, including trade tensions driven by U.S. President Donald Trump and his attacks on the independence of the Federal Reserve. However, the Bank has acknowledged its bond-selling programme is also a factor.
Michael Saunders, a former MPC member now at Oxford Economics, said market conditions were too fragile for the Bank to continue at its current pace.
“The gilt market and bond market in general are weak and volatile. Current conditions are such that a higher pace of active sales might have an undesirable effect on pushing up yields further,” he said.
Another ex-MPC member, speaking anonymously, said: “It definitely has to be reduced. Not reducing it would be completely tone deaf to what’s happening in the global bond markets.”
Since the financial crisis, the Bank accumulated a bond portfolio worth £895bn through quantitative easing.
Over the past year, it has reduced holdings by about £100bn, but still retains about £560bn. Sales have often been at a loss, increasing costs to the Treasury.
City analysts expect the Bank to cut the programme to about £70bn for the next 12 months, though this would still require maintaining active sales because fewer gilts are due to mature.
Sushil Wadhwani, another former MPC member, argued for a complete halt to active sales, warning that high long-term yields were damaging international confidence in the UK economy.
Andrew Sentance, also formerly of the MPC, supported reducing the pace but cautioned against viewing the move as relief for the Treasury.
“The job of the Bank is not to make the chancellor’s life easy. Its job is to control inflation. And a modest winding back on QT would be quite consistent with that,” he said.
The Institute for Public Policy Research (IPPR) has estimated that halting active sales could save the Treasury more than £10bn annually, aligning the Bank of England’s approach with the U.S. Federal Reserve and European Central Bank.
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However, retaining the bonds would also carry costs, as the Bank pays more in interest on commercial bank reserves than it earns on its gilt holdings.
