The Bank of Bank of England is preparing for its next decision on quantitative tightening (QT) in September, with growing debate over whether to continue active bond sales. Since 2022, the BoE has unwound over £400 billion of its quantitative easing portfolio, draining roughly half of the bank reserves created during the program. Its balance sheet, which peaked at 42 percent of nominal GDP in 2021, has returned to pre-pandemic levels and is nearing the projected endpoint.

Unlike other major central banks that allow bonds to mature passively, the BoE has pursued active sales to accelerate normalization. This approach has accelerated the process but imposed immediate fiscal costs on the Treasury, which indemnifies the central bank against valuation losses. Critics argue these losses worsen public finances and increase long-term borrowing costs.

However, the BoE contends that lifetime costs of QE and QT are broadly neutral when accounting for savings from lower borrowing costs during years of near-zero interest rates. More importantly, the original rationale for QT—creating headroom for future asset purchases—appears largely fulfilled. The BoE now holds the smallest share of the gilt market since 2009, with projections showing further decline to about 17 percent next year.

Governor Andrew Bailey and former governor Mark Carney have both emphasized the need for balance sheet flexibility. Some analysts suggest adopting a permanent gilt portfolio aligned with the BoE's new repo-led operating framework, preserving strategic options without committing to indefinite active QT.