Former members of the Bank of England’s monetary policy committee (MPC) have called on Andrew Bailey to ease pressure on government borrowing costs by scaling back or halting the central bank’s bond-selling programme. They argue that slowing “quantitative tightening” (QT) could save the Treasury up to £10bn a year.
Britain’s long-term borrowing costs have reached their highest level in 27 years, adding to the challenges facing chancellor Rachel Reeves ahead of her 26 November autumn budget. While the Bank has blamed global factors such as Donald Trump’s trade war, it has also acknowledged that its £100bn bond sales programme is pushing up yields.
The Bank, which bought nearly £900bn of gilts during the financial crisis to lower borrowing costs, is now unwinding QE and has sold about £100bn in the past year, mostly at a loss. Its gilt portfolio still stands at around £560bn. Investors expect QT to be reduced to about £70bn in the year ahead, though that would require active sales to continue as fewer gilts are set to mature.
Michael Saunders, formerly of the MPC, said current market conditions make a slowdown likely, while another ex-member warned that not cutting back would be “tone deaf.” Sushil Wadhwani urged halting active sales altogether, recommending a switch to passive QT to avoid further market disruption.
Scaling back sales could relieve pressure on gilt yields and the Treasury, though Andrew Sentance cautioned that the Bank’s duty is to control inflation, not to ease the chancellor’s burden. The IPPR thinktank has estimated that stopping active sales could save more than £10bn annually, though costs remain from paying higher interest on commercial bank reserves than the Bank earns on gilts.
The Bank is expected to hold interest rates at 4% this week while possibly signalling a slower pace of QT.
