Bank of England to Halt Long-Dated Gilt Sales

The Bank of England will cease active sales of 20- and 30-year gilts. The decision is expected to be announced alongside the interest rate decision on Thursday. This halts a program that has reduced bond holdings by over £400 billion since 2022.

Global debt markets have faced a selloff driven by inflation concerns. Prices of long-dated UK bonds fell to their lowest levels since 1998. The central bank aims to ease pressure on yields during this period of market stress.

Fiscal savings for the government

Stopping these sales could save the UK government £2.5 billion annually. The savings are projected to materialize by the end of the decade. Finance Minister John Healey will use this data for the upcoming budget statement.

The budget is scheduled for October 28. It will be the first statement from the new government. The move provides additional fiscal flexibility without new borrowing.

Market reaction and investor views

Investors have long called for an end to active bond sales. Governor Andrew Bailey defended the program as a tool for future intervention. A July survey showed investors expected a slower pace of portfolio reduction.

The central bank’s holdings have dropped significantly since February 2022. Unlike the Federal Reserve, the Bank of England has actively sold bonds rather than letting them mature. This difference has been a point of debate among market participants.

Context of the debt rout

Global bond prices have fallen due to rising inflation pressures. These pressures are linked to geopolitical tensions and supply shocks. Central banks face difficulty in balancing rate hikes and fiscal support.

The Bank of England accumulated £875 billion in bonds between 2009 and 2021. This was part of emergency economic support. The recent sale of assets has been a key part of the exit strategy from those measures.