Bank of England sets out multi-year gilt sale plan at £20bn annually and Chancellor exchanges open letters with Governor as CPI hits 3.1%
The Bank of England published a market notice on 17 September 2026 setting out its plan to reduce the Asset Purchase Facility (APF) gilt portfolio to zero through annual sales of £20 billion alongside maturing gilts, following a decision by the Monetary Policy Committee (MPC) at its meeting ending 16 September 2026. The APF (the programme through which the Bank purchased UK government bonds, known as gilts, during successive rounds of quantitative easing) currently holds approximately £488 billion in gilts measured at purchase proceeds. The Bank's plan allocates those holdings across three categories: £221.7 billion of gilts maturing before 2035 will be held to maturity; £120 billion of the longest-dated gilts will be retained to indirectly back banknote issuance; and the remaining £146.5 billion of gilts maturing between 2035 and 2049 will be unwound at the £20 billion annual pace, with sales concluding around 2034. The Bank is also exploring a model under which it would sell those gilts directly to the government via the Debt Management Office (DMO), at market prices and in a pre-defined manner. A final decision on that model will be made before April 2027, after which operational details will be announced and Bank APF auctions will pause in the meantime. Separately, on 17 September 2026 the Chancellor of the Exchequer and the Governor of the Bank of England exchanged open letters required under the MPC's remit because CPI (Consumer Prices Index) inflation reached 3.1% in August 2026, more than one percentage point above the 2% target. The MPC held the Bank Rate at 3.75% at the same meeting.
Why this matters
The Bank's formal articulation of a multi-year gilt sale path at £20 billion per year is one of the most consequential structural decisions in UK debt markets this year. Quantitative tightening (the unwinding of QT portfolios through asset sales) at this scale directly affects gilt market supply and pricing, which flows through to corporate borrowing costs, mortgage rates, and pension fund valuations. The proposal to sell the middle-maturity tranche directly to the government via the DMO is a structurally novel arrangement that has implications for how the DMO manages its own financing remit and annual gilt issuance targets. The simultaneous open-letter exchange, triggered by CPI at 3.1%, underlines that the Bank is managing two pressures at once: reducing the balance sheet while inflation remains above target.
On the Ground
The QT plan creates immediate work for debt capital markets lawyers and structured finance teams advising on gilt-backed repo and securities lending arrangements, as well as for government advisory practices tracking DMO financing changes. Leveraged finance and corporate lending teams will need to advise clients on the likely upward pressure on gilt yields feeding through to base rates and credit spreads. Fund finance and regulatory capital practices will be active as pension funds and insurance companies reassess their liability-driven investment (LDI) strategies in light of a sustained £20 billion annual supply increase. A trainee would monitor the Bank's April 2027 operational announcement deadline, draft a briefing note summarising the APF unwind mechanics for clients, and assist in updating facility agreement interest rate provisions or hedging strategy memos where floating rate exposure is relevant.
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“What are the legal and structural implications of the Bank of England's proposed model of selling APF gilts directly to the government via the Debt Management Office, rather than through open-market operations?”
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