What is Quantitative Easing — and Why Does it Matter?
Quantitative Easing (QE) is the process by which the Bank of England created new money and used it to buy UK government bonds (gilts) from investors in the secondary market. Between 2009 and 2021, the BoE purchased £895 billion of gilts — equivalent to a third of all outstanding gilts and roughly a third of annual UK GDP.
The purpose was to lower long-term interest rates, stimulate the economy, and prevent deflation — first after the 2008 financial crisis, then again during COVID-19. It worked, but at a cost that is now becoming clear.
Quantitative Tightening (QT) is the reverse: selling those gilts back to the market or allowing them to mature without replacement. The BoE began QT in 2022 and is reducing the portfolio by ~£70bn per year.
£875bn
Gilts Purchased (total QE)
£20bn
Corporate Bonds (QE)
2009
QE Started
2022
QT Started
~2028
Est. QT Completion
~28p
Lowest Sale Price (per £1 bought)
APF Gilt Holdings Over Time — QE Build-Up and QT Unwind (£bn)
Gilt Holdings (£bn, left axis)
Cumulative Cash to Treasury (£bn)
Cumulative Cash from Treasury (losses, £bn)
APF Cash Flow Timeline — Profits Then Losses
2009
QE Begins — First £75bn
BoE creates money to buy gilts. Interest rate cut to 0.5%. APF established with HMT indemnity.
2012
Profit Transfer Begins
George Osborne agrees to transfer APF net income to HMT. APF holdings reach £375bn.
Starts transferring profits to Treasury
2013–22
Golden Years — Profits Flow to Treasury
With Bank Rate near zero, APF coupon income far exceeds funding costs. Cumulative profit peaks.
+£123.9bn transferred to HM Treasury
2020–21
COVID — Final QE Surge
Additional £450bn of QE to fund COVID response. Peak holdings reach £895bn peak (now being reduced to £492bn) in late 2021.
Peak: £895bn peak (now being reduced to £492bn) gilt portfolio
2022
Rate Rises — Losses Begin
Bank Rate rises sharply to fight inflation. APF funding costs (interest on reserves) exceed coupon income. QT active sales begin September 2022. Some gilts sold for as little as 28p per £1 paid.
First HMT→APF loss payment: Oct 2022
2023–25
Accelerating Losses
HMT makes quarterly loss payments to APF. Annual loss in 2024 approximately £40bn — 1.4% of GDP. All earlier profits now reversed.
Net taxpayer position turns negative early 2026
2026+
Ongoing QT — Losses Continue
Portfolio reducing at £70bn/year. OBR estimates cumulative net lifetime loss of £126bn. Completion expected ~2028–2030.
OBR lifetime net loss: ~£126bn
The True Cost to Taxpayers
£123.9bn
Profits to Treasury 2013–22
~£250bn
Estimated Total Losses (lifetime)
~£126bn
Net Lifetime Loss (OBR est.)
~£40bn
Annual Loss in 2024
🚨 The bottom line: The BoE made £123.9bn in profits when rates were near zero, transferred it all to the Treasury, then began making much larger losses as rates rose. The OBR estimates the net lifetime loss at £126bn — meaning the programme will cost taxpayers a net £126bn more than it made. The 2024 annual loss of ~£40bn alone is larger than the UK's entire defence budget.
QE Programme Cost vs Public Spending (Net Loss £126bn)
NHS Annual Budget
£192bn
QE Net Loss
£126bn
All Schools
£77bn
Defence Budget
£54bn
⚠️ Important context: The BoE argues that QE delivered wider fiscal benefits — by lowering gilt yields during QE, the government was able to borrow at lower rates, saving potentially as much as the losses on the programme itself. The APF Q4 2025 report shows that under one set of assumptions, debt-servicing savings could fully offset lifetime losses. This is contested by economists and the Treasury Select Committee found the calculation opaque.
QT Unwind Progress — Gilt Portfolio Reduction (£bn) 2022–2030 est.
Active QT Sales (£bn)
Passive QT (Maturities, £bn)
Remaining Portfolio (£bn, right axis)
📋 The MPC set a pace of £100bn reduction in the year to September 2023, then £100bn to September 2024, then £100bn to September 2025, then £70bn to September 2026. At this pace the portfolio will reach near zero around 2028–2030. The pace of active sales vs passive maturities affects when losses are crystallised but not the total lifetime cost in present value terms.
UK vs Other Central Banks — How QT Losses Are Being Handled
🇬🇧 Bank of England
Active QT (selling gilts). Losses charged immediately to taxpayer via HMT indemnity. Most aggressive approach globally. Net loss ~£126bn.
🇺🇸 US Federal Reserve
Books losses as "deferred asset" — effectively borrowing against future profits. Does not charge losses to Treasury immediately. Total 2024 loss ~$87bn but not taxpayer-facing.
🇪🇺 European Central Bank
Passive QT only — holding bonds to maturity, not selling. Also stopped paying interest on minimum reserves since Sep 2023, reducing losses significantly.
🇨🇦 Bank of Canada / NZ
Created matching derivative asset on balance sheet to cover QT losses out of future profits — spreading the cost over time rather than charging immediately to Treasury.
🚨 The UK's approach — active QT with immediate Treasury indemnity — means UK taxpayers are bearing QT losses faster and more directly than almost any other major economy. The Treasury Select Committee questioned whether this represents good value for money. The BoE maintains that the total lifetime cost is the same regardless of pace, but the immediate fiscal pressure is uniquely high in the UK.