The Bank of England (BoE) has reduced its quantitative tightening (QT) envelope from £100bn to £70bn with a broad landing zone of £65-75bn.
The move comes as a potential boost for Rachel Reeves ahead of her November budget amid concerns the bank was pushing up borrowing costs by smothering the bond market with UK debt.
The bank’s quantitative tightening programme influences how much money the chancellor will have to keep the public finances in balance, adding to the cost of servicing the national debt.
A slowdown in how fast the BoE reduces its balance sheet could help lower yields on bond markets, which is the return that issuers of debt, such as the Treasury, must pay to buyers.
Under the QT programme, Threadneedle Street has been selling some of the government bonds it bought during the financial crisis and the Covid-19 pandemic.
It will lower its stock of UK government bond purchases by £70bn over the next year, taking its total to £488bn. Since 2022, the BoE has reduced its gilt holdings from £875bn to £558bn.
The monetary policy committee (MPC) was split over its decision to slow the pace of its bond-selling programme on Thursday.
Seven MPC members, Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Dave Ramsden and Alan Taylor, voted in favour of cutting its UK government bond purchases by £70bn over the next year.
However, Catherine Mann wanted a larger slowdown in QT, cutting sales to £62bn over the next year.
Chief economist Huw Pill voted to cut stocks by £100bn, meaning the same pace of reduction as over the last 12 months.
Governor Andrew Bailey said:
