The Bank of England is facing growing pressure to slow or halt active gilt sales as UK borrowing costs rise to multi-decade highs.
The supplied source says the 10-year gilt yield moved above 5.4%, its highest level since 2007, while the 30-year yield reached 5.93%, the highest since 1998.
That has intensified scrutiny of quantitative tightening.
The Bank accumulated government bonds during years of quantitative easing and has been reducing the portfolio through maturities and active sales.
Because many of those bonds are now worth less than their purchase price, active sales crystallize losses for the Treasury.
The Bank estimated in August that total QT-related losses could reach approximately £120 billion if rates follow the path implied by markets.
The policy also affects market supply.
Selling more gilts into an already weak market can increase the amount investors need to absorb, potentially putting upward pressure on yields.
Critics therefore argue that slowing active sales could reduce borrowing costs without abandoning monetary restraint entirely.
The Bank can still shrink its balance sheet through maturities.
Governor Andrew Bailey has defended the existing framework, arguing that the Monetary Policy Committee’s job is not to minimize short-term Treasury losses.
That institutional separation matters.
A central bank that adjusts policy primarily to reduce government financing costs can damage credibility.
The counterargument is that QT design has fiscal consequences whether policymakers acknowledge them or not.
The source says officials are considering slower annual sales and may stop selling longer-dated gilts.
That would reduce pressure on the part of the curve where losses and duration risk are highest.
For investors, the decision affects both bond supply and the broader policy mix.
Slower QT can be supportive for gilts even if the policy rate remains restrictive.
The maturity profile of the Bank’s portfolio matters as well.
Long-dated bonds are especially sensitive to interest-rate changes, so selling them after yields have risen crystallizes larger mark-to-market losses.
Allowing those bonds to mature naturally can reduce immediate market impact, though it extends the time needed to shrink the balance sheet.
The fiscal optics are politically difficult because the Treasury indemnifies the Bank for QE losses.
That means taxpayers ultimately absorb the difference between the purchase value and realized proceeds.
Still, optimizing the portfolio solely for fiscal cost could undermine monetary independence.
The more sustainable solution is a transparent QT framework that explains why active sales are necessary, how pace is chosen and when market conditions justify adjustment.
What investors should watch: the Bank’s annual QT target, treatment of 20- and 30-year gilts, 10-year and 30-year yields, Treasury funding costs and whether the government changes the Bank’s remit.
BTI’s bottom line: the UK debate is no longer simply whether QT reduces inflation. It is whether active bond sales are adding unnecessary pressure to a market already struggling with high yields and fiscal costs.