BoE may reduce gilts by 50-100bn pounds over a year: Bailey

LONDON: Bank of England Governor Andrew Bailey said the central bank was considering reducing its British government bond holdings by 50-100 billion pounds ($60-120 billion) in the space of a year through a mix of active sales and maturing gilts.

The BoE stopped reinvesting the proceeds of maturing gilts from its 875 billion-pound stockpile in February, which will lead to a 37 billion-pound fall in gilt holdings by July next year, most of which has already occurred.

The BoE has previously said it will give details on active gilt sales at its August meeting and Bailey’s remarks are the first time he has put a number on potential disposals.

“We are currently looking at a total reduction in the stock of gilts held by the APF, which covers both sales and gilt redemptions, of something in the region of 50-100 billion pounds in the first year,” Bailey said in the text of a speech he is due to give to London’s financial community later on Tuesday.

Outright sales could begin soon after a confirmatory vote at the BoE’s September policy meeting, he added.

Bailey also repeated that a half-point increase in the BoE’s Bank Rate - which would be the first since it gained operational independence in 1997 - was on the table for August’s policy announcement, but he added that no decision had been made.

“A 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view,” Bailey said.

Financial markets are pricing in a 94% chance that the BoE will raise Bank Rate to 1.75% from 1.25%.