BOE’s QE Program Eventually Will Have to Be Unwound, Bailey Says

(Bloomberg) -- Bank of England Governor Andrew Bailey said policy makers eventually will have to unwind the 895 billion pounds ($1.2 trillion) in bond purchases it made to stimulate the U.K. economy during the pandemic. 

“You cannot have a balance sheet that remains this big permanently,” Bailey said in testimony to the Economic Affairs Committee in the House of Lords on Tuesday. “It needs to come down and need to have policies that bring it down.”

The remark is in step with the BOE’s plan to halt asset purchases under the quantitative easing program at the end of this year and consider when to tighten monetary policy. 

While some economists have said the BOE could maintain those bonds on the balance sheet until they mature, Bailey’s comment indicates he may sometime in the future back gilt sales from the central bank’s portfolio as a form of tightening.

For now, the bank has said it won’t change the size of the portfolio until the benchmark lending rate, now 0.1%, rises to at least 0.5%. Investors anticipate the first post-pandemic rate rise on Dec. 16 with the 0.5% threshold hit sometime next year.

Bailey also reiterated that it’s tightness in the labor market “that concerns me most.”

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