The Bank of England is set to announce this week that it will stop selling long-dated government bonds which have been hit by a global selloff in debt markets, potentially freeing up some cash for finance minister John Healey, the Telegraph reported adding that the BoE would say it would stop selling 20- and 30-year gilts.
The central bank, which already scaled back the sale of longer-dated gilts, is due to announce its plan for the pace of quantitative tightening on Thursday, alongside its latest interest rate decision.
Prices of 20- and 30-year gilts touched their lowest since 1998 (and yields inversely hit the highest) on Monday as part of a rout of government bonds around the world as the Iran war adds to inflation pressures and puts pressure on central banks to raise official borrowing costs.
Last year the BoE skewed sales away from long-dated gilts, and Deutsche Bank has said they could be halted altogether. A BoE survey published in July showed investors expected just over 15% of the central bank's bond sales in the 12 months from September to be of longer maturity.
The Telegraph said halting longer-dated bond sales could save the government £2.5 billion a year by the end of the decade which would be a boost for Healey as he prepares for the first budget statement of the government of Prime Minister Andy Burnham on October 28.
The BoE racked up £875 billion of government bond purchases between 2009 and 2021 as part of its emergency QE support for the economy. Since it stopped reinvesting maturing gilt proceeds in February 2022, the BoE's bond holdings have fallen by over £400 billion, a third of it through active sales - unlike the Federal Reserve and the European Central Bank which allow the bonds they hold to mature but do not sell them.
Some investors have called on the BoE to halt sales but Governor Andrew Bailey has defended the program, saying it would allow for intervention in markets if needed in the future.
The Reform UK party of former Brexit campaigner Nigel Farage has criticised the cost of the BoE's QT programme. The BoE survey in July showed investors expected the central bank to slow the pace at which it reduces its bond portfolio to £50 billion in the 12 months to the end of September 2027 from £70 billion in the current 12-month period.