BOE's Likely Announcement on Slower Quantitative Tightening in Focus

By Miriam Mukuru

The Bank of England is expected to announce a slower pace of its bond sales program, also referred to as quantitative tightening, alongside its interest rate decision due at 1100 GMT.

The move could help ease pressure on long-dated U.K. government bonds, known as gilts, after they recently surged to multiyear highs, analysts said.

The BOE conducts regular sales of gilts as part of its policy of shrinking its bond holdings, which were acquired in the years after the global financial crisis, following the U.K.'s vote to leave the European Union, and during the Covid-19 pandemic.

The BOE's bond holdings peaked at 895 billion pounds ($1.2 trillion) at the turn of 2022. Starting in November 2022, the BOE began the quantitative tightening process through a mix of gilts and corporate-bond sales, and by allowing bonds to drop out of its balance sheet after they mature, also referred to as redemptions.

The size of the bonds held by the central bank has reduced considerably from the 2022 peak to 488 billion pounds, the BOE said in the July monetary policy report.

Markets widely expect the pace of quantitative tightening will be slowed to around 50 billion pounds per year starting in October, from 70 billion pounds currently.

The monetary policy committee estimated that the quantitative tightening program had added around 20 basis points to 30 basis points to ten-year gilt yields since the program began in 2022.

This is a fairly small impact, given the stronger pressures on U.K. and global sovereign bond yields due to inflation and fiscal concerns, Stefan Koopman, senior macro strategist at Rabobank, said in a note.

Still, the effect is probably more pronounced in long-maturity gilts, where structural demand is weaker, he said.

Morgan Stanley economists estimate quantitative tightening has added as much as 70 basis points to 30-year gilt yields.

Analysts expect the BOE to reduce the sale of long-term gilts or even pause these sales over the coming year due to low demand for these assets. This could help lower yields on very long-dated gilts after the 30-year gilt yield recently reached 5.960%, the highest since 1998, LSEG data showed.

"Any reduction in long-end supply would likely reinforce recent flattening pressure and help gilts outperform," Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, said in a note.

Rabobank expects a bigger reduction in long-maturity sales and more sales in the short-term and medium-term category. However, the Telegraph this week reported that BOE could stop long-dated bond sales over the October 2026 to September 2027 period, and some analysts concur. J.P. Morgan economist Allan Monks said the BOE could halt long-dated bond sales and increase short-dated and medium-dated gilt sales equally.

Morgan Stanley expects the BOE's quantitative tightening to comprise roughly 30 billion pounds of gilt redemptions and 20 billion pounds of active sales.

The economists expect the gilt sales to have a maturity split of 45% short-dated gilts, 40% medium-dated gilts and 15% long-dated gilts.

Rabobank expects a similar reduction in the pace of quantitative tightening to 50 billion pounds.

This would be a "very modest slowing in the pace of active quantitative tightening," Rabobank's Koopman said.

Write to Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

September 17, 2026 06:02 ET (10:02 GMT)