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(Bloomberg) -- The Bank of England will maintain the pace it is reducing its balance sheet of bonds, a decision that may have implications for how much fiscal firepower Chancellor Rachel Reeves has at the upcoming budget.

The Monetary Policy Committee voted to keep the overall run-off of its stock of gilts at £100 billion ($133 billion) during the next year of so-called quantitative tightening, in line with economists and markets’ expectations. That came along officials’ decision to keep interest rates steady at 5%.

The BOE is reversing its vast bond-buying stimulus since the financial crisis through a mix of actively selling bonds and stopping reinvestments when they reach their redemption dates. However, an unusually high amount of bond redemptions, of £87 billion, over the next 12 months reduced the scope for active sales, which will end up falling from around £50 billion to £13 billion. 

As the UK Treasury has to make up for losses from the reversal of the BOE’s quantitative easing program, the pace of the unwind may impact the chancellor’s budget on Oct. 30. Currently the Office for Budget Responsibility takes an average of previous years’ active sales under QT to make its fiscal forecasts. If it stuck to this approach, Reeves would get a £3 billion boost to her fiscal headroom. 

However, the BOE sticking to a £100 billion run-off for a third year means the OBR could adopt a new assumption that this pace continues going forward. Bloomberg Economics calculates that this would reduce the chancellor’s already thin headroom by a further £5.5 billion.

The huge losses on the QT program that are being paid for by the Treasury have ramped up political scrutiny of the BOE’s bond operations. The OBR’s latest estimate is that the net lifetime losses will be £104 billion, a major drag on the public finances. There have also been concerns that the sale of bonds by the BOE have pushed up gilt yields, though the central bank’s analysis suggests the impact has been small.

It also comes at a time when the BOE is preparing markets for a major shake-up in its balance sheet policy. It wants to move to a system where it provides liquidity to the market via repo operations — lending cash to banks in exchange for collateral — rather than through outright purchases of assets.

The hope is that these repos will wean markets off its bloated balance sheet by reducing the risk that banks cannot access funding when reserves drop too low. Financial institutions have increasingly tapped the BOE’s weekly short-term repo facility, which provides cash in return for pledging gilts, and last week borrowed around £44 billion.

Due to the lower amount of gilt sales required to meet the £100 billion QT target, the BOE said it expects to hold just one auction in each of its three maturity buckets in the first three quarters. The final quarter is likely to consist of only of short- and medium-maturity gilt sales, the BOE said.

The calendar for next quarter includes a £600 million sale of long bonds on Oct. 7, £800 million of short notes on Oct. 14 and £750 million of medium-maturity debt on Oct. 21.

(Updates with details of gilt sales schedule from penultimate paragraph.)