Bank of England holds rates at 3.75% and slows gilt sales to £46bn a year

# What happened

# The QT decision in plain terms The Bank will unwind its asset purchase stock at an average pace of £46bn a year through to the end of 2034. That pace is made up of two parts:

• Annual active gilt sales: £20bn per year.
• Gilts maturing each year: about £26bn per year that will not be reinvested.

Previously the Bank had been shrinking its balance sheet at about £70bn a year. The new plan is smaller than market expectations (City forecasts had been nearer £50bn).

The Bank currently holds £488bn of gilts bought under the asset purchase programme created after the global financial crisis. It will set aside £120bn of those gilts to back the issuance of banknotes. The remainder—about £368bn—will be wound down by the end of 2034.

# Why the Bank changed course on gilt sales Criticism mounted that the Bank's active selling of gilts was contributing to higher yields on government debt, which raises UK borrowing costs. Selling gilts increases supply in the market and can push their yields up. The Bank also makes a loss when it sells gilts below the price it paid, a loss that affects the public finances.

Faced with volatility in the gilt market and concerns about the impact on borrowing costs and taxpayers, the Bank opted for a slower, more predictable run‑off.

# Market and fiscal effects to watch Gilts rallied on the announcement, which pushed down government borrowing costs in the immediate aftermath. That reaction suggests markets welcomed the reduced pace of active sales.

• Government borrowing costs: A slower QT should reduce upward pressure on yields compared with the prior plan of larger sales.

# MPC vote and the near-term outlook

Market pricing at the time put only a 20% chance on an immediate rate rise, making a hold an 80% probability. The Bank warned that prolonged volatility in global energy and goods markets would increase the chance of future rate hikes to bring inflation back toward its 2% target.

# Bottom line The Bank chose to pause on interest rates while materially slowing the pace of gilt sales and formalising a plan to hold £120bn of its gilt stock to back banknotes. The move aims to reduce gilt-market disruption and limit further increases in government borrowing costs, with implications for the public finances that will become clearer as the Treasury and Bank implement the plan.