Members of the Treasury select committee have warned not enough is being done to prepare for the unwinding of quantitative easing.
The Bank of England has bought £325bn worth of Government bonds from the secondary market over the past three years.
Yesterday, during a TSC sub-committee hearing with the Debt Management Office which sells gilts for the Government, committee member and Conservative MP Andrea Leadsom warned the Bank’s plan to raise rates and sell off a third of its portfolio would affect the yield curve of Government bonds.
DMO chief executive Robert Stheeman said he had not spoken “in any great detail” with the monetary policy committee about how QE would be unwound as it is a decision for the committee. He added he had raised the issue with the Treasury in the past but had not done so recently because the need to unwind QE is a long way off.
TSC chairman Andrew Tyrie said: “We need to start thinking about this because it is a huge sum of money.”
Leadsom called on the DMO to raise the matter with the MPC because it will effect the work of the DMO. “You should think about the exit before you walk down a bind alley. All we are doing is more QE and still it appears no-one has actually considered the mechanism by which you get out,” she said
Stheeman said it was for the Bank to approach the DMO and his office was ready to talk when this happens.
He said the DMO would like to see the gilts held by the Bank sold off in a “predictable and programmatic” way, adding the Bank’s executive director for markets Paul Fisher has said the same thing.