The Bank of England is facing increasing pressure to pause or slow its programme of selling government bonds, a strategy that is expected to generate losses exceeding £100 billion for taxpayers. The Bank’s Monetary Policy Committee (MPC) is set to announce its latest decisions this week, likely maintaining current interest rates amid persistent inflation driven in part by surging energy costs linked to the ongoing geopolitical tensions involving Iran.

Since the 2008 financial crisis and through the COVID-19 pandemic, the Bank purchased £895 billion worth of government bonds—known as gilts—under a policy called quantitative easing (QE), aiming to support the economy by keeping borrowing costs low. These bonds were acquired at high prices during periods of ultra-low interest rates, a scenario in which bond prices rise as rates fall. Initially, QE proved profitable for taxpayers, with £124 billion returned to the Treasury.

However, the economic landscape shifted dramatically in 2022 as the Bank raised interest rates sharply to combat inflation exacerbated by Russia’s invasion of Ukraine. In response, the Bank has embarked on quantitative tightening (QT), actively selling gilts at a loss to reduce its balance sheet from £895 billion to £489 billion. As global borrowing costs remain elevated and may increase further, these sales are crystallizing significant financial losses. The Treasury, responsible for covering such losses, will see its responsibilities expanded amid a national debt nearing £3 trillion.

The government’s official forecaster, the Office for Budget Responsibility, anticipates further losses of £94 billion over the next four years under the current QT approach, including £22 billion linked to active gilt sales where bonds are sold before maturity. Critics argue that slowing or halting these sales would reduce or avoid such losses. Unlike the Bank of England, major central banks such as the European Central Bank and the U.S. Federal Reserve are not pursuing active government debt sales; the latter is currently buying back debt.

Bank Governor Andrew Bailey acknowledged to Parliament last week that the Bank’s transparent mechanism for transferring losses to the Treasury is “quite painful” but defended the need to offload gilts to maintain capacity for future economic intervention.

Economists including Gerard Lyons of NetWealth and William Ellis of the Institute for Public Policy Research argued that the Bank should stop active gilt sales and allow its balance sheet to naturally decrease as bonds mature. Ellis noted that the Bank’s pace of sales is out of step with global counterparts and described a pause as sensible. Market observers expect the MPC to reduce gilt sales from £70 billion to £50 billion annually, while continuing active sales rather than halting them entirely.

Mike Denham, former chair of the TaxPayers’ Alliance, criticized the policy as a “terrible mistake” that has left the Bank “painted into a corner.” Separately, Bailey opposed proposals to increase bank taxes to fund public spending, warning that higher taxes could prompt lenders to raise borrowing costs or reduce savings rates. Banks currently earn approximately £20 billion annually in interest on reserves held risk-free at the Bank of England due to elevated rates; some, including Lyons, have suggested implementing a tiered interest system as a compromise measure.