Economists have urged Chancellor John Healey to intervene with the Bank of England to halt or curb its quantitative tightening gilt offloading program ahead of an impending Monetary Policy Committee gathering. The appeal comes as borrowing costs surge across sovereign debt maturities, with the yield on the benchmark 10-year gilt reaching 5.4 percent on Monday and the 30-year gilt yield climbing to 5.93 percent.
Mounting losses from quantitative tightening
The recent market movements pushed 10-year gilt yields to their peak since July 2007, while 30-year yields reached levels unseen since March 1998. An August estimate calculated total losses to the exchequer from quantitative tightening at 120 billion pounds. Gilt sales will add 47 billion pounds to government debt by 2031, based on projections by the Office for Budget Responsibility.
The central bank reduced its bond portfolio below 490 billion pounds from a peak of 875 billion pounds. The pace has dropped from an earlier target of 100 billion pounds per year to a current annual target of 70 billion pounds. Analysts anticipate a reduction to 50 billion pounds annually. The estimate from the Office for Budget Responsibility assumed active gilt sales of 32 billion pounds per year.
Debate over operational independence
Charlie Bean, former deputy governor of the Bank of England, argued that it is politically unsustainable for rate-setters to resolve such matters without Treasury participation or finding ways to limit spillover costs to public finances. Christopher Mahon, senior fund manager at Columbia Threadneedle Investments and visiting fellow at the Open University Business School, argued policymakers should scrap active sales outright. The policy stands in contrast to the US Federal Reserve, which stopped actively selling its portfolio of bonds last year.
Governor Andrew Bailey and the rate-setting panel will address both borrowing costs and asset rundown parameters during their scheduled review. The discussions also involve input linked to the Cabinet Office, while figures including Andy Burnham, Louise Haigh, and John Llewellyn of Independent Economics have monitored the fiscal repercussions alongside broader international practice at institutions like the European Central Bank and the OECD.
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Source: Office for Budget Responsibility
