Bank of England offloads £750m gilts
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Bank of England ends the era of quantitative easing by unloading £750m worth of gilts
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The Bank of England has begun selling government bonds purchased during its extensive money-printing program.
Threadneedle Street unloaded £750 million from the gilts through quantitative easing (QT), kicking off the massive quantitative easing (QE) program that was launched in 2009 during the financial crisis.
Over the next 13 years – including the Brexit vote and the pandemic – the Bank bought £875 billion in government bonds and £20 billion in corporate bonds to cut borrowing costs and inject cash into the economy.
Purse tightening: Threadneedle Street unloaded £750m from the gilts through quantitative tightening, kicking off the winding up of the massive quantitative easing program
But with inflation at 10.1 percent at its 40-year high, the Bank is returning to support the crisis by raising interest rates and selling government bonds to bring prices back under control.
After raising interest rates from 0.1 percent to 2.25 percent since December — and with a further rise expected tomorrow — the Bank hoped to start QT last month.
But that was delayed by the chaos in the bond markets in the wake of Kwasi Kwarteng’s mini-Budget.
The Bank kicked off QT yesterday and got off to a strong start with investors bidding on gilts worth £2.4bn – well above the £750m up for sale.
It plans to hold eight auctions per quarter over the next year and will sell £750 million worth of gilts at each event.
Despite healthy demand, experts warned that the QT program could face hurdles as the government plans to borrow even more from investors.
Until Prime Minister Rishi Sunak closes the £50 billion hole in the state coffers through tax hikes and austerity measures, he will have to continue to spend gold.