Bank of England denies reported decision to further postpone gilt sale plans

The Bank of England has denied making a decision to further postpone plans to start selling government bonds in an attempt to allow battered gilt markets to recover following the mini-budget chaos.

Senior officials at the central bank were reported to have decided to delay the plan to offload at the end of this month some of its £838 billion of UK government bonds – or gilts – bought under the so-called quantitative easing programme.

As part of its emergency bond-buying action launched late last month, the Bank said it would postpone this plan – known as quantitative tightening (QT) – from October 3 until the end of October.

The Financial Times reported that it is now expected to put QT back further after senior figures at the Bank look to give more time for the “very distressed” gilts market to recover.

A Bank spokesman said: “This morning’s FT report that the BoE has decided to delay MPC gilt sales (‘QT’) is inaccurate.”

Experts and investors have been increasingly calling for the Bank to hold its QT plan, given fears that it could trigger another sell-off of gilts.

Gilts rallied on Monday as financial markets were placated by new Chancellor Jeremy Hunt’s emergency statement that tore up almost all of his predecessor Kwasi Kwarteng’s tax-cutting plans, with yields on 30-year government bonds dropping by around 10%.

But the rebound has still not undone the impact of the recent market turmoil, with yields significantly higher than the 3.75% level seen before Mr Kwarteng unveiled his disastrous mini-budget on September 23, and rising back up by another 0.5% on Tuesday.

The latest reaction to the Bank’s QT denial shows how delicate the gilt markets still are.

It is understood the Bank’s executive will make the final call on whether to press ahead with the QT plan, but does not believe there is any need to postpone it at this stage, unless the gilt market poses a further risk to financial stability.

Former pensions minister Baroness Ros Altmann is among those who have urged the Bank to completely halt its plan to offload £80 billion of gilts.

“The Bank must put its QT on hold… not telling markets that it isn’t about to step into the market with £80 billion of sales would invite further chaos,” she added.

But the Bank is thought to be keen to show its independence from the Government and focus on its priority to fight rampant inflation through interest rate rises and reducing its balance sheet of bonds built up through QE.

Separately on Tuesday, deputy governor Sir Jon Cunliffe told the Treasury Committee that the Bank was continuing to monitor developments in conventional and index-linked gilt markets this week after its emergency bond-buying programme ended on October 14.

In a letter to committee chairman Mel Stride, Mr Cunliffe said: “The Bank and the FPC (Financial Policy Committee) will continue to monitor market conditions, channels through
which vulnerabilities could amplify future market stresses, and domestic and international progress towards reforms in the NBFI (non-banking financial institution) sector.”