The Bank of England has announced a revised quantitative tightening strategy, aiming to reduce its gilt holdings by £488 billion by the end of 2034. The new plan sets an average reduction pace of £46 billion per year, which is a decrease from the previous annual target of £70 billion.
The portfolio is divided into three segments. Assets worth £222 billion maturing by 2035 will expire passively. A portion of £146 billion will be sold actively at a rate of £20 billion annually, potentially through direct transactions with the Debt Management Office. Finally, £120 billion in long-dated gilts will be retained permanently.
All gilt auctions are suspended for six months to allow the framework to take effect, with a formal review planned before April 2027. Meanwhile, the Bank Rate remains unchanged at 3.75 percent following a 6-3 vote by the Monetary Policy Committee.
Since the start of the program in February 2022, selling pressure has added 20 to 30 basis points to term premia. Market participants are now adjusting to the new roadmap, which provides visibility into the central bank's balance sheet reduction through 2034.
