MNI POLICY: BOE To Examine Gilt Sales Plan In Wake Of Turmoil

Recent market turmoil means the Bank of England’s five-member Executive will need to consider pushing back the start of active gilt sales from Oct 31, though the initially positive reaction to government U-turns on tax cuts and fiscal support for higher energy prices may ease concerns over further delays to the plans.

Members of the Executive, comprised of Governor Andrew Bailey and four deputy governors, must take an operational decision on whether to proceed with the sales, which were always contingent on market conditions and whose initial planned start date was postponed for a month on Sept 28. (See MNI INSIGHT: BOE's QT Pace Known, Terminal Point Unknowable)

The BOE’s nine-member Monetary Policy Committee, in which all of the executive also sit, has already given the green light for gilt sales of around GBP10 billion a quarter. It is not involved in operational activities, though it was informed of the Sept 28 decisions, when the Bank was forced to intervene in gilt markets to assist distressed pension funds in the wake of Sept 23’s mini-budget fiscal giveaways.

MONETARY POLICY

The MPC stated at its September meeting that as "a matter of course, it would not continue to vote at each meeting on propositions regarding the stock of purchased assets.” While the recent gilt market sell-off will have tightened financial conditions, its deliberations at its next meeting, whose results will be announced on Nov. 3, will concentrate on the economic forecast round and the size of its clearly-signalled rate hike, with market expectations centred on a 100bps rise.

The yield on 10-year gilts fell more than 35 basis points below 4% after new Chancellor Jeremy Hunt reversed most of his predecessor’s fiscal measures on Monday.