UK political spectrum unites in criticism of Bank of England’s quantitative tightening

The Bank of England’s quantitative tightening program has managed to draw criticism from politicians across the political spectrum, united by concern that the policy is costing British taxpayers significant sums.

The criticism centers on a straightforward problem. The BoE is selling government bonds it bought during the quantitative easing era at steep losses, and the British taxpayer is on the hook for every penny of those losses through a Treasury indemnity arrangement.

The mechanics of an expensive unwind

The BoE’s Monetary Policy Committee kicked off its QT program in February 2022, reversing years of aggressive bond-buying that had ballooned the central bank’s balance sheet. At its zenith, the BoE’s holdings from quantitative easing sat at roughly £895 billion. By June 2026, that figure had fallen to approximately £523 billion, a reduction of more than £370 billion. The shrinkage comes from two channels: actively selling gilts on the open market and simply letting bonds mature without reinvesting the proceeds.

The active sales piece is where things get politically combustible. When the BoE purchased these bonds, interest rates were near zero, meaning bond prices were elevated. Now, with rates substantially higher, those same bonds are worth considerably less. Selling them locks in crystallized losses.

Under the indemnity arrangement, the Treasury covers those losses through the BoE’s Asset Purchase Facility. The payments flow directly from public finances, effectively increasing the amount the government needs to borrow.

Strange bedfellows in Parliament

Reform UK has been the loudest voice in the chorus of criticism. Nigel Farage and Richard Tice have argued that the ongoing sale of gilts is actively working against taxpayer interests, estimating that pausing active sales could save tens of billions of pounds annually. Their position is blunt: why sell bonds at a loss when you could simply hold them to maturity and avoid crystallizing those losses altogether?

Governor Andrew Bailey has pushed back against these criticisms. His defense rests on the argument that QT supports the credibility of monetary policy and that the program exists to serve monetary, not fiscal, objectives.

Bailey has asserted that QT supports monetary policy credibility without direct fiscal objectives, rejecting calls to halt active gilt sales.

The counterargument writes itself. If letting bonds mature naturally achieves the same balance sheet reduction without billions in realized losses, the active sales component starts to look like an unforced error. Critics point out that a slower, passive approach would accomplish the same goal on a longer timeline while saving the Treasury a substantial sum.

What this means for investors

For bond markets, any shift in the pace of gilt sales would directly affect supply dynamics. The BoE selling fewer bonds means less supply hitting the market, which, all else being equal, would support gilt prices and push yields lower.

QT by design drains reserves from the banking system, tightening financial conditions beyond what the policy rate alone achieves. A slower pace of tightening would leave more liquidity in the system, potentially easing borrowing conditions for corporates and consumers alike.

Investors watching the BoE should pay close attention to whether the political consensus against active sales translates into actual policy changes, because the gap between £895 billion and £523 billion still leaves a lot of bonds left to manage.

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