Fund Managers Urge Bank of England to Halt Gilt Sales

Leading global fund managers overseeing more than $1.5 trillion in assets are calling on the Bank of England (BoE) to halt gilt sales, arguing that the central bank’s quantitative tightening strategy is driving yields higher and destabilizing Britain’s already fragile bond market.

Despite the BoE’s decision to slow its bond-selling pace from £100 billion to £70 billion, fund managers insist this reduction is insufficient. They believe continuing to halt gilt sales is crucial to preventing further strain on government finances and investor confidence.

Why Fund Managers Want to Halt Gilt Sales

The BoE’s bond-selling policy, part of its effort to unwind pandemic-era stimulus, has led to several unintended consequences:

• Rising Borrowing Costs: UK government borrowing rates have surged, now ranking among the highest in the G7. Analysts estimate gilt yields have increased by nearly 70 basis points due to active sales.
• Taxpayer Burden: The Treasury now covers the BoE’s losses on gilt disposals, estimated at £22 billion per year, deepening fiscal pressures.
• Market Volatility: Investors warn of a “fiscal feedback loop,” where higher yields lead to increased borrowing, which in turn pushes up yields and exacerbates volatility.

Alternative Proposals

Several industry experts and former policymakers, including ex-MPC member Sushil Wadhwani, have joined the call to halt gilt sales completely. They argue that active quantitative tightening undermines the transmission of monetary policy and crowds out private demand for government debt.

Fund managers propose a passive QT approach, where gilts are allowed to mature naturally instead of being sold. Others suggest pausing sales of long-dated gilts, which have the most significant impact on borrowing costs.

Additional solutions include temporary buybacks during volatile periods and creating a fiscal buffer fund to offset losses, reducing direct taxpayer exposure.

Economic Implications

Analysts warn that if the BoE continues selling gilts while planning rate cuts later this year, the two actions could work against each other—loosening monetary conditions with one hand while tightening liquidity with the other. Suspending gilt sales, they argue, would help align fiscal and monetary policy goals, providing stability at a time when the UK faces slowing growth and persistent concerns about inflation.

The debate over whether to halt gilt sales underscores a broader shift in central-bank strategy, with calls growing for more flexible, data-driven policy rather than rigid adherence to quantitative tightening targets.