Bank of England Sets Eight-Year Plan to Unwind £488 Billion in Gilt Holdings

The Bank of England has unveiled a multi-year plan to shed most of its remaining £488 billion stock of government bonds, while pausing sales for six months and ending disposals of long-dated gilts altogether.

The decision follows a global bond selloff that pushed British 30-year borrowing costs to their highest level since 1998, reviving criticism that the central bank's bond sale policy locks in losses underwritten by the government.

Governor Andrew Bailey said the plan provided clarity on the future of quantitative tightening. He said the Monetary Policy Committee and the Bank had decided to retain a substantial portion of the gilt stock held for monetary policy purposes, with the remainder to be unwound over the next eight years.

The Bank bought £895 billion ($1.2 trillion) of sterling debt, almost entirely government bonds, between 2009 and 2021 through successive quantitative easing programmes aimed at supporting the economy and holding down longer-term interest rates. It stopped reinvesting maturing bond proceeds in February 2022 and began outright gilt sales in September 2022, lifting the pace of quantitative tightening to £100 billion a year. Last September the MPC slowed that pace to £70 billion, and on Thursday it voted 9-0 for the new framework.

Under the plan, the Bank will reduce to zero the gilts it holds for monetary policy purposes. Of the £488 billion outstanding, £120 billion maturing in 2049 or later will be kept permanently to back banknotes. A further £222 billion maturing by 2034 will be allowed to run off, while the remaining £146 billion will be sold.

That works out to £20 billion a year in sales and an average annual unwind of £46 billion including maturities — slower than the £70 billion of the past 12 months but broadly in line with what investors surveyed by the Bank in July had expected for 2026/27.

Sales will be paused until April while the Bank consults the government on selling gilts directly to the Debt Management Office at market prices rather than through its own auctions. The shift could help avoid poor pricing on small residual amounts of gilt.

The Bank has been unique among major central banks in conducting outright sales of government debt rather than waiting for it to mature, reflecting the longer average maturity of British government debt compared with other countries.

The Bank estimates quantitative tightening has raised gilt yields by about a quarter of a percentage point, which it considers small given the broader surge in bond yields in recent years. Some analysts put the impact closer to three-quarters of a percentage point for 30-year gilt yields — more than the current gap between British and U.S. 30-year borrowing costs.