The Bank of England said its balance-sheet reduction has increased UK borrowing
costs slightly more than previously estimated. In its Thursday monetary policy
report the BoE said quantitative tightening lifted the 10-year gilt yield by
about 20–30bps, versus a prior estimate of 15–25bps. The BoE will set the pace
and size of balance-sheet reduction, including active gilt sales, in September
for the coming year. While critics have blamed the plan for higher borrowing
costs, the BoE said other factors, notably elevated inflation, were the main
drivers. TD Securities strategist Pooja Kumra said the assessment signals the
BoE is more accepting of QT’s effect on rates and reinforces market expectations
that the pace of QT will slow further.
