Bank is taking a risk in cracking on with first QT sale
The Bank of England, it seems, really did mean it when it said it would start selling gilts under its quantitative tightening, or QT, programme at the end of the month. OK, there will be a delay of a day because of the central banking equivalent of a TV scheduling clash – the chancellor will deliver his full medium-term fiscal plan on 31 October. But Threadneedle Street says it intends to press the QT button on 1 November.
One can understand, of course, the desire to crack on with the job, since there has already been one postponement. That occurred on 28 September when the Bank was diverted by Kwasi Kwarteng’s disastrous mini-budget. Gilt yields surged, causing chaos for pension funds and creating a threat to UK financial stability. The Bank was bounced into becoming a temporary buyer of gilts – to the tune of £19bn – instead of a seller.
The promise to get back to plan A at Halloween sounded more like a hope than an expectation at the time, and one cannot call it risk-free today. It is surely premature to sound the all-clear in the gilts market just because Jeremy Hunt slayed Trussonomics in a weekend. Tuesday’s 4.3% yield on the 30-year gilt is a lot better than the 5.1% at the height of the crisis, but the rate was 3.8% before Kwarteng’s fiscal event. If there is an appearance of calm, it is of the uneasy variety.
Hunt’s end-of-the-month announcement is, potentially, a market-moving event. One key question is whether investors judge his spending cuts to be credible. This time there will (finally) be numbers from the Office for Budget Responsibility to frame thinking, but there is no guarantee that the whole thing will pass off smoothly. In pitching up with the first QT sale the following day, the Bank is adding an
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