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Bank of England to Stick with Bond Selling Plans despite Falling Gilt Prices, says Deputy Governor

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The Bank of England (BoE) has stated that it will proceed with its plans to sell British government bonds, despite recent drops in long-dated gilt prices. BoE Deputy Governor, Dave Ramsden, confirmed that the bank’s thinking remains unchanged. Speculation had arisen that the BoE may need to adjust its programme of gilt sales, known as quantitative tightening, due to the decline in long-dated bond prices. Some bond market analysts, including primary dealers of gilts, suggested that the BoE could sell more short-dated bonds instead to alleviate pressure on the long-dated market. However, Ramsden dismissed this idea, stating that the changes in yield curves have no impact on the BoE’s plans.

Ramsden made these comments during a news conference held after the BoE’s decision to keep interest rates unchanged. In September, the BoE’s Monetary Policy Committee had voted to accelerate the reduction of its £750 billion ($914 billion) stock of gilts. The bank plans to decrease its holdings by £100 billion per year starting in October, up from the previous pace of £80 billion.

Ramsden emphasized that the BoE will adhere to its pre-established schedule of auctions for the remainder of the year, reiterating its commitment to its existing plans. This announcement comes amidst ongoing uncertainty surrounding the future direction of the UK economy, including the impact of Brexit and the effects of the COVID-19 pandemic.

The BoE’s decision to maintain its course of selling government bonds reflects its belief in the strength of the economy and its commitment to managing inflation. Selling government bonds is an important tool for the central bank, as it helps control the money supply and influence long-term interest rates. By reducing its holdings of gilts, the BoE aims to tighten monetary policy and prevent potential inflationary pressures.

The BoE’s position contrasts with the expectations of some bond market analysts, who had anticipated a change in strategy due to the recent drop in long-dated gilt prices. Nevertheless, the BoE remains resolute in its plans, demonstrating its confidence in the current economic outlook. As the UK continues to navigate through uncertain times, the central bank’s decision to stick to its existing strategy provides a sense of stability and reassurance to investors and the public alike.

It is worth noting that the BoE’s decision has implications for various sectors of the economy. The bond market, in particular, will be closely monitoring the bank’s actions, as shifts in gilt prices can have a significant impact on interest rates and borrowing costs. Additionally, this development may also influence financial markets more broadly, as investors seek guidance on the direction of monetary policy.

As the BoE maintains its plans for selling government bonds, the financial community will continue to monitor the situation closely. The central bank’s commitment to its strategy, despite recent fluctuations in bond prices, reflects its confidence in the UK economy and its determination to navigate the challenges ahead. The impact of these decisions, as well as the broader economic landscape, will undoubtedly be of interest to both investors and the general public in the United Kingdom.

More detail via Investing.com UK here… ( Image via Investing.com UK )

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