Market News

By David Milliken and Yoruk Bahceli

LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Wednesday that the future pace of quantitative tightening remained an "open decision" for its policymakers later this month.

The BoE bought 875 billion pounds ($1.18 trillion) of British government bonds between 2009 and 2021 to help support the economy and since 2022 has reduced this stockpile to 558 billion pounds through a mix of outright sales and gilts maturing.

The BoE sets the annual pace of QT once a year in September through a Monetary Policy Committee vote at the same time as a regular interest rate decision.

Over the past year the BoE has reduced its holdings by 100 billion pounds, but a BoE survey of investors last month showed a median expectation that the central bank will slow the pace over the next 12 months to 72 billion pounds.

However, there have been some forecasts and calls for the BoE to halt gilt sales entirely, including by one lawmaker on the House of Commons' Treasury Committee, which Bailey appeared before on Wednesday.

"Just to reassure you, the decision we're going to take in the next few weeks is an open decision, very clear, nothing closed about that decision," Bailey said.

The BoE estimates that net losses from QE and QT - which are underwritten by taxpayers - are likely to total around 115 billion pounds.

Some critics say the BoE's approach to gilt sales is increasing these costs.

Bailey said the 115 billion pound estimate did not take into account the benefit the government received from lower borrowing costs in the 2010s and early 2020s.

Long-dated gilt yields rose to their highest since 1998 on Wednesday, increasing the losses which are crystallised when the BoE sells these gilts.

Bailey repeated previous remarks that the BoE viewed the impact of QT on yields as low but would look "very seriously" at the "interaction" between higher long-dated gilt yields and its sales programme.

Such comments have made some analysts predict the BoE will skew QT away from sales of the longest-dated bonds in its portfolio.

($1 = 0.7402 pounds)

(Reporting by David Milliken and Yoruk BahceliEditing by Gareth Jones)