Borrowing costs plunge after Bank of England halts bond sales

The Telegraph revealed this week that officials had drawn up the plans with the Treasury and the Debt Management Office (DMO), which issues bonds on behalf of the Government, to halt those sales.

Confirming the move, Mr Bailey claimed stopping the sale would “support overall market efficiency” and help to manage the extra debt supply.

He said it would ensure that the DMO would be the “sole official sector supplier of government debt”.

Mr Healey agreed that it would streamline gilt supply, saying the decision would help to deliver “value for money” for the taxpayer.

Deutsche Bank has estimated that ending long-term sales, a process known as quantitative tightening (QT), could save £2.5bn a year.

Modupe Adegbembo, from investment bank Jefferies, said the changes implied a “materially lower future supply burden particularly for the long end of the gilt curve”.

The Bank has previously admitted that QT had pushed up borrowing costs by as much as 0.3 percentage points, equivalent to an interest rate increase.

“Active sales are not the only reason for long-end gilt underperformance, but reducing the likelihood of future sales removes an important source of pressure on the sector,” Ms Adegbembo said.

MPs and economists across the political spectrum have called for a wider overhaul of the Bank’s money printing programme, which is set to cost taxpayers an additional £94bn over the next five years.

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, the deputy leader of Reform UK, welcomed the changes, describing them as “an important step in the right direction”.

Mr Tice wrote to Mr Healey this week to demand a debate on the issue.

He added: “Bond yields have already responded positively, as I predicted. Reform’s advice to the Bank of England is helping dig the Chancellor out of a massive financial black hole.”

Reform has said a complete overhaul of bond sales could save taxpayers £20bn a year that could be used to fund defence spending.

However, Mr Bailey said Mr Tice’s plan to stop paying interest on reserves held by commercial banks would make it harder to control borrowing costs.