Bank of England slows pace of QT, skews away from long-dated gilt sales

LONDON, September 18 (Reuters) – The Bank of England kept rates unchanged on Thursday and said it was slowing the pace of its quantitative tightening programme and skewing sales away from long-dated gilts to minimise the impact on turbulent bond markets.

Policymakers voted 7-2 to slow the annual pace at which it unloads the gilts which it purchased from 2009 and 2021 to 70 billion pounds from 100 billion pounds, broadly in line with a Reuters poll median forecast for it to be cut to 67.5 billion.

“The new target means the MPC can continue to reduce the size of the Bank’s balance sheet in line with its monetary policy objectives while continuing to minimise the impact of gilt market conditions,” Governor Andrew Bailey said.

The slowdown is the first since the BoE started in 2022 to unwind its gilt holdings, which followed 875 billion pounds of purchases between 2009 and 2021 to boost the economy.

Bank of England Chief Economist Huw Pill voted to maintain the pace at 100 billion pounds – viewing the impact on markets as small – while MPC member Catherine Mann called for a faster reduction of 62 billion pounds.

The BoE said that over the next year, sales would be split 40:40:20 between short-, medium- and long-dated gilts on an initial purchase price basis.

Long-dated gilt yields hit their highest since 1998 at the start of this month.

Policymakers also voted 7-2 to keep interest rates at 4% after last month’s quarter-point cut, in line with expectation in a Reuters poll, after Monetary Policy Committee members Swati Dhingra and Alan Taylor kept up their call for lower rates.

The BoE maintained its forecast that inflation would peak at 4% this month and slowly fall back to its 2% target by the second quarter of 2027, and nudged up its growth forecast for the third quarter to 0.4% from 0.3%.

“Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully,” Bailey said.

Before Thursday’s decision, markets priced in only around a one-in-three chance of a further rate cut this year.

(Reporting by David Milliken and Suban Abdulla)

((david.milliken@thomsonreuters.com))

Keywords: BRITAIN BOE/