Key facts
- Bank of England Governor Andrew Bailey defended the central bank's active bond sale program.
- Bailey argued the program provides capacity for future quantitative easing.
- He stated quantitative easing protected jobs and supported the economy during crises.
- Critics argue active quantitative tightening (QT) has increased gilt supply and government borrowing costs.
- Bailey asserted that QT is cost-neutral for the Treasury, offsetting initial bond buying benefits.
- He explained the active selling approach was necessary due to the UK's longer-term gilt issuance.
Bank of England Governor Andrew Bailey has defended the central bank's controversial bond sale program, arguing it is necessary to provide capacity for future quantitative easing interventions during market downturns. In an article for The Times, Bailey asserted that the initial quantitative easing (QE) measures, which involved purchasing UK government bonds (gilts), were crucial in preventing mass unemployment and supporting the economy during the financial crisis and the COVID-19 pandemic.
Bailey's defense comes amid criticism from analysts and politicians, including Reform UK, who argue that the Bank of England's active approach to quantitative tightening (QT) – selling off its vast gilt portfolio – has led to an oversupply of gilts, driving up government borrowing costs. Critics also point to a £125 billion taxpayer liability agreed upon in 2010 to cover potential losses from the program.
However, Bailey maintained that the overall impact of QE and QT on the Treasury is cost-neutral, as the benefits from lower borrowing costs during the initial bond-buying spree offset the costs of selling gilts. He explained that the UK's issuance of longer-term gilts, unlike the shorter-term debt issued by other countries, necessitates an active selling strategy rather than a passive approach of letting bonds mature on the balance sheet. This approach, he argued, is essential given the structure of UK government debt.