Source · Select Committees · Treasury Committee
Recommendation 3
3
Acknowledged
Paragraph: 22
Bank of England lacks established long-term strategy for balance sheet size and composition
Conclusion
One area in which the Bank’s strategy is less well established regards the long-term steady-state size and composition of its balance sheet, which may have a bearing on the longer-term conduct of QT and which, as we note later, may have implications for fiscal as well as monetary and financial stability policy.
Government Response Summary
The government acknowledges the issues regarding the long-term size and composition of the Bank's balance sheet. They refer to previous communications outlining potential compositions and state that the Treasury is engaging with the Bank on these issues, noting that international central banks are also reviewing their balance sheets and any changes will be communicated when appropriate.
Paragraph Reference:
22
Government Response
Acknowledged
HM Government
Acknowledged
As the Committee refers to in their report, there are a set of important issues the Bank is likely to face as APF unwind continues. Across several speeches, former Executive Director for Markets at the Bank, Andrew Hauser, set out these challenges including supplying the right amount of central bank reserves to the market, transmitting the MPC’s policy rate decisions into the real economy, and doing so whilst maintaining financial stability. The market notice issued by the Bank in August 2022 outlined the mechanics of the Bank’s planned APF gilt sales, as well as the Bank’s new Short Term Repo facility (STR) and the potential long run composition of assets on its balance sheet.2 The APF unwind profile will continue to be determined by the independent MPC. As has been the case, subject to the MPC’s policy objectives, the Bank’s operations in respect of the APF and its unwind will continue to be governed, designed and risk managed with the aim of minimising cost and risk. These are important issues and the Treasury is engaging with the Bank on them, including to understand both the short and long-term implications arising from material changes to the Bank’s balance sheet and how the Bank will meet its statutory monetary policy and financial stability objectives. As in the UK, major central banks internationally are reviewing the future shape of their balance sheets. Any changes will be communicated at the appropriate time.