Quantitative tightening

Treasury Committee Closed Inquiry
Opened: 31 Jan 2023 Closed: 1 May 2024 Parliament page
This inquiry will examine quantitative tightening, including its impact on the economy and its fiscal costs. It will also investigate the role of quantitative easing and tightening in the current outbreak of double-digit inflation and in bringing inflation down. Read the call for evidence to find out more about the … Read more
10 Recommendations
12 Conclusions
1 Report
5 Letters
2 Events
Activity timeline 9 events
18 Apr
2024
Report published
7 Feb
2024
Report published
12 Jan
2024
Correspondence
12 Jan
2024
Correspondence
12 Jan
2024
Correspondence
12 Jan
2024
Correspondence
18 May
2023
Formal meeting (oral evidence session) · The Bank of England (Restricted in-person public access)
18 Apr
2023
Formal meeting (oral evidence session) · The Wilson Room, Portcullis House
21 Mar
2023
Correspondence
Title HC No. Published Items Response
Fifth Report - Quantitative Tightening HC 219 7 Feb 2024 22 Responded
Recommendations & Conclusions
9 results
Clear
1 Conclusion Accepted
Fifth Report - Quantitative Tighte…
Bank of England's strategic framework for quantitative tightening is broadly reasonable
There are a variety of views about the desirability of the Bank of England undertaking quantitative tightening (QT), whether it has a good strategic framework for doing so, and whether it is conducting QT at an appropriate pace. Nonetheless, much … Read more
Government Response
The Bank welcomes the committee's finding that its strategic framework for QT is broadly reasonable and reiterates its existing strategy, guided by three key principles, for unwinding asset purchases.
HM Treasury
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2 Conclusion Accepted
Fifth Report - Quantitative Tighte…
Bank of England calibrates quantitative tightening to minimise impacts and create future space
Since it has some bearing on our later conclusions, we note here that the Bank and Monetary Policy Committee (MPC) have determined: that QT is not being used as an active tool of monetary policy; that they are calibrating QT … Read more
Government Response
The government's response outlines the MPC's existing strategy for unwinding asset purchases, guided by principles such as using Bank Rate as the primary tool and conducting QT gradually. They explain that the MPC's framework for monetary policy is robust and that annual reviews are conducted to support predictable QT decisions.
HM Treasury
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4 Recommendation Accepted
Fifth Report - Quantitative Tighte…
Develop detailed planning on long-term balance sheet size and provide regular public updates
The Bank should develop its planning on this long-term steady-state size and composition of its balance sheet, and how this relates to QT, in more detail and give regular public updates on the likely future size and composition of its … Read more
Government Response
The government states the Bank is continuing to analyse the optimal steady-state level of reserves and is undertaking work to determine the long-term mix of assets for its balance sheet. Decisions on its future size and shape will be made in consultation with HM Treasury and communicated transparently.
HM Treasury
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5 Conclusion Accepted
Fifth Report - Quantitative Tighte…
Bank of England lacks specific tracking of quantitative tightening's economic impacts
QT is a comparatively untested monetary policy tool, and it is understandable that the Bank would find it challenging to model its effects as part of its forecast. We have seen supporting evidence for the Bank’s contention that it is … Read more
Government Response
The government explains that the MPC already takes QT's impact into account through asset price assessments, annual reviews, and regular monitoring in reports and minutes. They state that Bank staff use various modelling tools and conduct quantitative analysis to estimate QT's impact and that this remains an active research area for the Bank and other central banks.
HM Treasury
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7 Conclusion Accepted
Fifth Report - Quantitative Tighte…
Quantitative Tightening presents an untested intervention amidst high gilt issuance, risking financial instability.
There are no clear signs that QT has resulted in financial stability issues to date, either in the gilt market or more widely. We also recognise that bringing down the share of gilts owned by the Bank in favour of … Read more
Government Response
The government explains that the Bank and FPC are already taking action to protect financial stability, including providing facilities for non-bank institutions and addressing market dysfunction. They clarify that QT is conducted for monetary policy, designed to be gradual and predictable, and that financial stability tools can be used independently in the event of market dysfunction.
HM Treasury
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11 Recommendation Accepted
Fifth Report - Quantitative Tighte…
Revisit arrangements for future Quantitative Easing considering value-for-money, public spending, and Bank independence.
We recognise that QE and QT are processes already well in train, and it may not be possible to make large changes to the arrangements made in 2009 and 2012 without impacts on the credibility of the UK macroeconomic framework. … Read more
Government Response
The government clarifies that future QE would not proceed automatically, as the Chancellor must authorise APF increases based on value-for-money assessments and Accounting Officer advice. It commits to keeping its approach to managing cashflows under review and considering lessons learned should QE be deployed again.
HM Treasury
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13 Recommendation Accepted
Fifth Report - Quantitative Tighte…
Explore including value-for-money and Treasury spending criteria in ongoing QT pace decisions.
That being so, while it is right that MPC members should have monetary policy and the inflation target foremost in their thinking and decision-making, the Bank and Treasury should explore how criteria on value for money and the spending power … Read more
Government Response
The government clarifies that while MPC decisions are independent, the Bank's operational implementation of QT already prioritizes value for money by minimising cost and risk over the APF's lifetime, subject to MPC objectives, through mechanisms like auction design.
HM Treasury
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16 Conclusion Accepted
Fifth Report - Quantitative Tighte…
Chancellor’s role in approving APF changes for QE/QT remains unclear.
The Chancellor’s role in approving changes in the size or composition of the APF that houses the QE and QT programme remains unclear to us, since on one hand the Chancellor insists that decisions over QE and QT are taken … Read more
Government Response
The government clarifies the Chancellor's role, explaining that while the MPC maintains operational independence, the Chancellor's authorisation for APF indemnity relates to Treasury's responsibility for public funds, involving assessments of fiscal and macroeconomic impacts.
HM Treasury
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17 Recommendation Accepted
Fifth Report - Quantitative Tighte…
Clarify whether Chancellor’s APF authorisation is substantial or formal and explain macro-economic impacts
The Treasury should clarify whether the Chancellor’s authorisation of changes to the APF involves a substantial decision or is only a formal endorsement of the MPC’s decision, and explain the extent of the assessment of macro-economic and fiscal impacts that … Read more
Government Response
The government clarifies that the Chancellor's authorisation of APF changes focuses on the increased contingent liability and supports MPC independence, with risk assessment differing for expansion versus unwind. It confirms that decisions to approve indemnity increases are made case-by-case based on value-for-money assessments, implying no automatic threshold.
HM Treasury
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Government Response AI assessment · 22 of 10 classified
Accepted 9
Acknowledged 6
Deferred 1
Not Addressed 1
Rejected 5
Total 10 recs + 12 conclusions
Correspondence 5 letters
12 Jan 2024 From committee Letter to Bank of England relating to Cashflows arising from quantitative easing and tightening, dated 4 December
Parliament page
12 Jan 2024 From committee Letter to HM Treasury, Permanent Secretary relating to Cashflows arising from quantitative easing and tightening, dated 4 December
Parliament page
12 Jan 2024 To committee Letter from Bank of England relating to Cashflows arising from quantitative easing and tightening, dated 18 December
Parliament page
12 Jan 2024 To committee Letter from HM Treasury, Permanent Secretary relating to Cashflows arising from quantitative easing and tightening, dated 15 December
Parliament page
21 Mar 2023 Correspondence from the Bank of England relating to the inquiry into Quantitative Tightening, dated 16 March
Parliament page