UK Politicians Unite Against Bank of England's Costly Bond Sales Program

The Bank of England's quantitative tightening program faces bipartisan criticism over its financial cost to British taxpayers.

The central bank is selling government bonds purchased during the quantitative easing era at significant losses. Under a Treasury indemnity arrangement, taxpayers cover these losses through public funds, increasing government borrowing needs.

The program, which began in February 2022, has reduced the Bank's bond holdings from a peak of £895 billion to approximately £523 billion. The reduction comes through both active sales and allowing bonds to mature without reinvestment.

The active sales component generates political friction because bonds bought when interest rates were near zero are now worth considerably less due to higher rates. Selling these bonds locks in realized losses.

Reform UK politicians including Nigel Farage and Richard Tice argue that halting active sales could save tens of billions annually. They contend the central bank should simply hold bonds to maturity rather than crystallize losses.

Bank of England Governor Andrew Bailey defends the program, stating that quantitative tightening supports monetary policy credibility and serves monetary rather than fiscal objectives.

Critics counter that a passive approach of letting bonds mature would achieve the same balance sheet reduction over a longer timeline while avoiding billions in realized losses.

For investors, any policy change would affect bond market supply dynamics. Slower sales would mean less bond supply, potentially supporting gilt prices and lowering yields. Reduced quantitative tightening would also leave more liquidity in the banking system, potentially easing broader borrowing conditions.