London – UK

In a dramatic intervention, the Bank of England has been urged to slow its bond-selling plan, a key component of its “quantitative tightening” (QT) strategy. A chorus of prominent economists and former policymakers are calling for a change in policy to help cut record UK borrowing costs, which have risen to their highest level in decades and are threatening to derail the UK’s fragile economic recovery. The pleas to Governor Andrew Bailey come at a critical time for the UK economy, with market volatility and stubbornly high inflation creating a “febrile” atmosphere that critics say is being exacerbated by the Bank’s current policy. The debate over whether the Bank should adjust its course pits its primary mandate of fighting inflation against the need for financial stability.

A Growing Chorus of Concern

The calls for a slowdown are coming from a wide range of influential voices. Former members of the Bank’s Monetary Policy Committee (MPC), including Michael Saunders, Sushil Wadhwani, and Andrew Sentance, have publicly argued that the current pace of bond sales is putting undue pressure on the UK government’s borrowing costs. Michael Saunders stated that “It is highly likely they will slow the pace. The gilt market and bond market in general are weak and volatile,” adding that a higher pace of active sales “might have an undesirable effect on pushing up yields further.” Sushil Wadhwani went even further, calling for a complete halt to active sales and a switch to “passive QT,” where the Bank only allows maturing debt to expire without replacing it.

The Bank of England’s current QT policy, which involves actively selling gilts back into the market, makes it an outlier among major central banks. The U.S. Federal Reserve and the European Central Bank have largely favored passive QT, allowing their balance sheets to shrink as bonds mature. Critics argue that the Bank of England’s active approach is directly contributing to the sell-off in UK government bonds (gilts), which in turn pushes up the interest rate, or yield, that the government has to pay to borrow money. This is particularly problematic given the UK’s record debt levels, with the government’s interest payments already exceeding £100 billion a year.

Key Headline Points on the Policy Debate

 * Pressure from Ex-Policymakers: A number of former Monetary Policy Committee members are publicly advocating for a slowdown or halt to the Bank’s active bond sales.

 * UK as a Global Outlier: The Bank of England’s active QT strategy is a divergence from the policies of other major central banks, like the Federal Reserve, which have opted for a more passive approach.

 * Rising Borrowing Costs: The sell-off in UK gilts has pushed government borrowing costs to a 27-year high, making it more expensive for the Treasury to finance the national debt.

 * Inflation vs. Stability: The central bank faces a difficult balancing act between its primary mandate to control inflation and the need to prevent further market disruption and excessive government borrowing costs.

 * Future of QT under Review: The Bank’s governor, Andrew Bailey, has indicated that the decision on the future pace of the QT program remains “an open decision,” suggesting a policy change is being seriously considered.

Exclusive Insights and The Political Dimensions

An exclusive insight from a financial analyst close to the Treasury revealed that there is a quiet but growing concern within government circles that the Bank’s policy is making the Chancellor’s job more difficult. The analyst, who requested anonymity, stated, “The Bank’s independence is sacrosanct, but its actions have direct fiscal consequences. Every basis point increase in gilt yields adds billions to our borrowing costs, limiting our ability to invest in public services.” The source indicated that while there is no official communication from the Treasury to the Bank on this matter, the message is being conveyed through “back channels” and public statements from political allies.

The Bank, for its part, has maintained a firm public stance that its QT program is separate from its interest rate policy and that its primary goal is to return inflation to its 2% target. Governor Andrew Bailey, in a recent appearance before a parliamentary committee, played down the significance of the 30-year bond rate surge, stating that it was important “not to over-focus” on it. However, he did acknowledge that the future pace of QT is an “open decision” and would be reassessed later this month. This suggests that the Bank is feeling the pressure and may be looking for a way to subtly adjust its course without appearing to buckle to political pressure.

The debate also highlights the ongoing tension between central bank independence and government fiscal policy. As the UK’s debt load continues to grow, the decisions made by the Bank of England on its balance sheet will have a more direct and profound impact on the nation’s finances than ever before. With market expectations already pricing in a slowdown from the current £100 billion a year to around £70 billion, a more significant reduction could provide much-needed relief to the Treasury. Conversely, sticking to its current plan could signal a hawkish resolve to fight inflation, but at the cost of higher government borrowing and potential financial instability. The stakes for both the government and the Bank of England have never been higher.