Threadneedle Street is the only major central bank actively selling bonds to the market before they mature, immediately resulting in billions of pounds of losses for the taxpayer.
Richard Tice, Reform UK’s deputy leader, ramped up his attacks on so-called “quantitative tightening” on Monday. He said: “We shouldn’t be doing quantitative tightening, we shouldn’t be paying voluntary interest on printed money.”
Under the Bank’s plans, active bond sales will continue – which investors predict will be £20bn in the coming year – but they will exclude long-term debt, where losses have been much greater.
The Bank will also stop offloading bonds directly to investors and begin selling the short-term and medium-term bonds it holds directly to the Treasury’s DMO to help manage the extra debt supply.
Bank officials previously considered selling debt directly back to the DMO in 2022, as is the approach in New Zealand. However, this plan did not progress because of concerns it could undermine the Bank’s independence.
Treasury officials are increasingly nervous about the rising cost of money printing. Rachel Reeves, the former chancellor, called for a renewed focus on “value for money” on gilt sales.
However, Andrew Bailey, the Governor of the Bank, has repeatedly defended the Bank’s approach to debt sales, arguing that a halt would only stretch losses across a longer time horizon.
Economists are increasingly warning that the war in Iran will force the Bank of England to raise borrowing costs to keep a lid on inflation as oil prices soar.
William Ellis, of the IPPR think tank, said changes to quantitative tightening would have “real world consequences” in alleviating cost of living pressures by releasing money for the Treasury and easing interest rate rises.
The Bank of England and Treasury declined to comment.
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