Andrew Bailey is facing calls from former Bank of England policymakers to scale back the central bank’s bond-selling programme, with warnings that record-high borrowing costs are adding pressure on chancellor Rachel Reeves ahead of November’s autumn budget.
Four ex-members of the Bank’s monetary policy committee (MPC) have urged a slowdown or halt to quantitative tightening (QT), arguing it could save the Treasury up to £10bn a year. Britain’s long-term borrowing costs recently hit their highest level in 27 years, with Threadneedle Street acknowledging its £100bn programme of bond sales is contributing to the surge.
Michael Saunders, a former MPC member, said the gilt market was already “weak and volatile,” cautioning that further active sales risk pushing yields higher. Another ex-member called maintaining the current pace of disposals “completely tone deaf.”
The Bank bought almost £900bn in UK government bonds during the financial crisis to keep borrowing costs low, but has since shed about £100bn through sales and maturing debt. Its remaining £560bn portfolio is mostly being sold at a loss, increasing the strain on public finances.
Sushil Wadhwani, who served on the MPC from 1999 to 2002, argued for halting active sales entirely and switching to passive QT, letting only maturing debt roll off. “The 30-year yield has a significant impact on confidence in the UK economy,” he said.
Markets expect the Bank to trim its QT target to around £70bn for the next year, though that would still involve continued active sales due to fewer gilts maturing. Andrew Sentance, another former MPC member, said such a move would be consistent with controlling inflation but warned against expecting a fiscal windfall.
The IPPR thinktank has suggested scrapping active sales could save the Treasury over £10bn annually, though the Bank would still face costs from paying more on commercial bank reserves than it earns from its gilt holdings. Some economists are also pushing for new taxes on bank windfall profits or reduced interest on reserves.
