In the long aftermath of the 2008 financial crisis, the Bank of England finds itself unwinding a vast emergency intervention at a moment when the cost of doing so has become impossible to ignore. By selling government bonds purchased at near-zero interest rates into a high-rate environment, the Bank is locking in losses estimated at £120 billion while simultaneously pushing UK borrowing costs to their highest levels in nearly two decades. The tension between central bank independence and fiscal responsibility — long treated as a settled question — is now an open wound, with economists and fund
Economists press Bank of England to halt bond sales costing UK billions
The Bank is making a choice that directly harms the government's finances
Mark
So the Bank of England is selling bonds it bought during the crisis, and that's costing money. Why does selling bonds cost money if the Bank bought them in the first place?
Mimi
Because interest rates have risen dramatically since 2008. The bonds the Bank holds are worth much less now than when it bought them. When you sell something worth less than you paid for it, you crystallise a loss. And selling also floods the market with supply, which pushes down demand and forces the government to offer higher interest rates on new borrowing.
Mark
And the Bank is doing this deliberately?
Mimi
Yes. It's called quantitative tightening—the reverse of quantitative easing. The idea is to reduce inflation by tightening money supply. But the side effect is that the Treasury ends up paying the bill.
Luke
Hold on. The Bank estimated £120 billion in losses, but that's conditional on interest rates staying on a particular path. That's not a certainty. And the Office for Budget Responsibility's estimate of £47 billion by 2031 assumes £32 billion in annual sales—but the Bank is already signalling it will slow down. So the actual cost could be lower than these numbers suggest.
Mimi
That's fair. But even if the final number is lower, the principle remains: the Bank is making a choice that directly harms the government's finances, and the chancellor has decided not to push back.
Mark
Why would the chancellor accept that?
Mimi
The Bank argues it's not their job to consider Treasury costs—their job is monetary policy. Healey seems to have accepted that argument, at least for now. But economists like Charlie Bean and John Llewellyn are saying that's not sustainable. You can't have a central bank making trillion-pound decisions without some conversation with the Treasury.
Luke
But the Bank does have a point about independence. If the Treasury can tell the central bank what to do based on fiscal impact, you've compromised monetary policy. That's a real tension, not just a political convenience.
Mimi
True. But Llewellyn's argument is that independence doesn't mean ignoring consequences. It means negotiating to minimise harm while still pursuing your mandate.
Mark
And the comparison to other central banks—is that fair?
Luke
It's suggestive but not conclusive. The US Fed and the ECB took different approaches, partly because they bought different types of bonds. You can't just say the Bank's method is wrong because it's more expensive. You'd need to know whether the extra cost was the price of a better outcome elsewhere.
Mimi
Fair point. But when your method costs four times as much as the Federal Reserve's, that's worth examining.
Mark
What happens next?
Mimi
The Bank meets this week to decide on interest rates and whether to slow sales further. The real question is whether Healey will change his position before his budget next month, or whether he'll stick with accepting the Bank's assurances.
Der Puls
- Ten-year gilt yields have hit 5.4% — the highest since 2007 — and thirty-year yields have reached levels unseen since 1998, signalling that the cost of British sovereign debt is climbing into genuinely alarming territory.
- The Bank's quantitative tightening programme has already generated an estimated £120 billion in losses for the exchequer, with the Office for Budget Responsibility projecting a further £47 billion added to national debt by 2031.
- Governor Andrew Bailey insists the monetary policy committee has no mandate to weigh Treasury costs, even as the Bank quietly reduces its annual sales target from £100 billion to an expected £50 billion — an implicit acknowledgement that the pace was unsustainable.
- Chancellor John Healey faces cabinet pressure to confront the Bank directly in its new remit, but has so far accepted assurances of mindfulness rather than demanding structural change.
- Economists including a former Bank deputy governor and a former OECD chief economist are openly calling the independence firewall a fiction, arguing that decisions of this fiscal magnitude cannot be made unilaterally by the central bank.
- Compared to the US Federal Reserve and the European Central Bank, the Bank of England's approach has proven two to four times more costly — a disparity critics attribute to the composition of the bonds bought during the crisis years and the speed of their disposal.
In the long aftermath of the 2008 financial crisis, the Bank of England finds itself unwinding a vast emergency intervention at a moment when the cost of doing so has become impossible to ignore. By selling government bonds purchased at near-zero interest rates into a high-rate environment, the Bank is locking in losses estimated at £120 billion while simultaneously pushing UK borrowing costs to their highest levels in nearly two decades. The tension between central bank independence and fiscal responsibility — long treated as a settled question — is now an open wound, with economists and fund managers arguing that the firewall between Threadneedle Street and the Treasury was always more doctrine than reality.
The Bank of England has spent the past four years unwinding one of the largest financial interventions in British history — and the bill is now arriving in a form that is difficult to dismiss. After buying nearly £875 billion in government bonds during the quantitative easing era to stabilise the economy after 2008, the Bank began selling them back into the market to combat inflation. The problem is that those bonds were purchased when interest rates were close to zero. Selling them now, in a high-rate environment, locks in enormous losses — and flooding the market with supply pushes up the interest rates the government must pay to borrow.
The numbers have grown stark. The Bank's own August estimate put total losses from the programme at £120 billion, assuming interest rates follow the path markets expect. This week, the yield on the benchmark ten-year gilt crossed 5.4%, the highest since July 2007, while the thirty-year gilt touched levels not seen since 1998. Global pressures — including Middle East conflict driving up oil prices — are contributing, but the Bank's own sales are amplifying the damage.
Governor Andrew Bailey has defended the policy in parliament, arguing that short-term costs to the Treasury fall outside the monetary policy committee's remit. The Bank has quietly scaled back its ambitions — cutting its annual sales target from £100 billion to £70 billion a year ago, with a further reduction to around £50 billion expected this week — but critics say these adjustments are insufficient given the scale of the losses Chancellor John Healey will face at his first budget next month.
Within cabinet, voices have urged Healey to take a harder line when issuing the Bank its new remit. Louise Haigh, the Cabinet Office chief, had previously pledged to restrain Bailey from policies that harm the government's balance sheet. So far, those pressures have produced assurances rather than action.
Economists are growing openly sceptical that the current arrangement is tenable. Charlie Bean, a former deputy governor of the Bank, argued that decisions with such profound fiscal consequences cannot be made without some form of Treasury involvement. John Llewellyn, former chief economist of the OECD, went further, calling the independence firewall a fiction and arguing that Bailey should expect to negotiate with the chancellor. Meanwhile, fund manager Christopher Mahon of Columbia Threadneedle Investments noted that the Bank's approach has proven twice as expensive as the European Central Bank's and four times as expensive as the Federal Reserve's — which stopped active bond sales altogether last year. The question now is whether Healey will act before the compounding costs foreclose his options.
The Bank of England is selling government bonds at a pace that economists say is costing the country billions of pounds—and the chancellor has so far chosen not to intervene. This week, as the Bank's monetary policy committee meets to set interest rates, the question of whether to slow or halt these sales will be on the table alongside the usual rate decision.
The backstory matters. After the 2008 financial crisis, the Bank bought vast quantities of government debt—gilts—in a process called quantitative easing, meant to inject money into the economy and keep borrowing costs down. For the past four years, it has been reversing that operation, selling the bonds back into the market to reduce inflation. The trouble is that those bonds, bought when interest rates were near zero, are now worth far less. When the Bank sells them, it locks in losses for the Treasury. At the same time, flooding the market with supply pushes down demand for government debt, which drives up the interest rate the government has to pay to borrow.
The numbers have become stark. In August, the Bank estimated that if interest rates follow the path financial markets expect, its bond-selling programme could cost the exchequer £120 billion in total losses. The cost of government borrowing has already climbed to levels not seen in decades. On Monday, the yield on the benchmark ten-year gilt crossed 5.4 percent, the highest since July 2007. The thirty-year gilt hit 5.93 percent, a level unseen since March 1998. Much of this reflects turmoil in global markets—the Middle East conflict is driving up oil prices and rattling investors—but the Bank's own sales are making the problem worse.
Andrew Bailey, the Bank's governor, has defended the policy in parliament, arguing that it is not the monetary policy committee's job to worry about costs to the government in the short term. Bank officials have signalled that sales will continue, though at a slower pace than originally planned. A year ago, the Bank cut its annual sales target from £100 billion to £70 billion. It is expected to lower that again this week to £50 billion. Even so, critics say the Bank is ignoring an escalating bill that Chancellor John Healey will face when he presents his first budget next month.
Some voices inside the cabinet have pushed Healey to take a harder line with the Bank when he issues its new remit, but he has chosen instead to accept assurances that the Bank will be mindful of the damage. Louise Haigh, the Cabinet Office chief, has previously pledged to stop Bailey from pursuing policies that harm the government's balance sheet, but that pressure has not translated into action.
Economists are increasingly skeptical that the current arrangement can hold. Charlie Bean, a former deputy governor of the Bank of England, said the monetary policy committee cannot make such consequential decisions for the Treasury without some form of involvement or negotiation. John Llewellyn, a former chief economist of the OECD, called the notion of a firewall between the Treasury and the central bank a fiction. Bailey, he argued, should expect to negotiate with the chancellor to keep costs down.
The scale of the Bank's bond sales is striking when compared to other central banks. Since late 2022, when active sales began, the Bank has cut its portfolio from a peak of £875 billion to under £490 billion—one of the fastest reductions among advanced economies. The US Federal Reserve stopped actively selling its bonds last year. Christopher Mahon, a senior fund manager at Columbia Threadneedle Investments, said the Bank's methods have proved twice as expensive as the European Central Bank's approach and four times as expensive as the Federal Reserve's, largely because of the type of bonds the Bank bought, which have lost enormous value since 2008. He argued the Bank should scrap active sales altogether.
The Office for Budget Responsibility, the Treasury's independent forecaster, has estimated that the Bank's bond sales will add roughly £47 billion to government debt by 2031, based on assumed annual sales of £32 billion. Neither the Treasury nor the Bank of England responded to requests for comment. The question now is whether Healey will change course before the damage compounds further.
Bemerkenswerte Zitate
I do not think it is politically sustainable for the MPC to be able to take such decisions without the involvement of the Treasury or else somehow reduce the magnitude of spillovers to the Treasury.— Charlie Bean, former deputy governor of the Bank of England
The idea that there was a firewall between the Treasury and the central bank was a fiction, and Bailey should expect to negotiate with the chancellor to minimise costs.— John Llewellyn, former chief economist of the OECD
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