Bank of England to unwind £368bn; eight-year test for Bitcoin

The Bank of England will reduce its holdings of gilts by £368 billion by September 2034. The plan combines £20 billion a year of active sales with bond maturities, producing average annual runoff of about £46 billion.

The figure applies to the portfolio remaining after the Bank separated £120 billion of longer-dated gilts to back banknotes. The Monetary Policy Committee voted to keep Bank Rate at 3.75%; six members supported holding the rate and three-Megan Greene, Catherine Mann and Huw Pill-preferred a rise to 4%. All nine members backed the multi-year gilt wind-down.

The Bank will pause Asset Purchase Facility auctions while it and HM Treasury review a possible sales-to-government model with the Debt Management Office. Operational details are expected by April 2027, and any new arrangement would require final approval. Gilts will continue to mature during the pause, adding to the overall runoff from the portfolio.

The planned pace of active sales aligns with recent practice: the Bank sold about £21 billion over the past 12 months compared with the £20 billion-per-year figure in the new schedule. Including maturities, average annual runoff falls to roughly £46 billion from about £70 billion recorded in the previous year.

Quantitative tightening transfers gilts from the Bank’s balance sheet back to private investors. That shift can increase the extra yield investors demand to hold long-dated government debt. In a July assessment, the Bank estimated that quantitative tightening accounted for about 20 to 30 basis points of an approximately 200-basis-point rise in long-term gilt term premia since 2022; the Bank attributed the larger share of the increase to global uncertainty, sovereign issuance and changes in domestic demand.

Market reaction on the day of the announcement was limited: the 10-year gilt yield fell by more than 7 basis points and the 30-year gilt yield fell nearly 10 basis points in early trading. The Bank noted the first-day moves do not isolate the effect of each policy element.

The plan links to broader market questions about how changes in long-term yields affect risk assets. Research has found that US monetary tightening can depress a common crypto-market factor, a finding that relates to US policy shocks and does not constitute direct evidence that UK gilt policy will move Bitcoin. On the day after the Bank’s announcement, Bitcoin traded near $78,000 on market snapshots; such snapshots do not establish causation with gilt operations.

The Bank’s programme runs to September 2034 and will unfold through a mix of active sales and maturities. Operational details from the Treasury and the Debt Management Office are due by April 2027, after which any new transfer mechanism would need approval before active sales resume.