This Report contains information on the Bank of England’s Asset Purchase Facility (APF) for 2026 Q3. More information on what the APF is and what it does is available in our Market Operations Guide. A timeline describing the history of the APF is provided as background at the end of the Report.

Unwinding the APF

At its September 2026 meeting, the Monetary Policy Committee (MPC) decided to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, to zero. This will be conducted through annual sales of £20 billion alongside maturities, such that the remaining stock is unwound at an annual average pace of £46 billion by the end of 2034.

In implementing the MPC’s decision, the Bank Executive has decided to retain in the APF £222 billion of gilts maturing before 2035 to maturity.footnote [1] In addition, £120 billion of the longest-dated gilts will remain in the APF and be held to maturity by the Bank for the purposes of indirectly backing current and future banknote issuance.

The Bank is considering adjusting the way it conducts sales of the remaining gilts, which mature between 2035 and 2049 and amount to £146 billion in purchase proceeds terms. The Bank has engaged with HM Treasury (HMT) and the Debt Management Office (DMO) to consider a model whereby the MPC’s decision could be implemented through APF sales to the Government, and this approach is subject to final agreement with HMT. The Bank will be announcing by April 2027 the operational details through which it will be implementing the MPC’s multi-year plan.

Cash flow arrangements between the APF and HMT

While the separation of fiscal and monetary policy is a key feature of the UK’s macroeconomic framework, it has long been recognised that quantitative easing (QE) and quantitative tightening (QT) have fiscal implications through several channels: supporting economic activity, employment and tax revenues; influencing the rate at which the Government issues debt; and cash transfers between the APF and HMT under the APF indemnity.

Cash flows between the APF and HMT arise as a result of the indemnification of the APF by HMT. The mechanics of these cash flows are detailed in a 2022 Quarterly Bulletin article.

Between 2009 and 2022, the APF’s activities generated positive net cash transfers from the APF to HMT, peaking at a cumulative £123.9 billion at end-September 2022. It was recognised that reverse payments from HMT to the APF were likely as Bank Rate increased and as the APF’s gilt holdings were unwound. The first such quarterly transfer from HMT to the APF occurred in October 2022 and payments have been made on a quarterly basis thereafter. By the end of 2026 Q3 the APF had transferred £13.1 billion to HMT, in net terms, with further cash flows from HMT to the APF likely necessary until the end of APF unwind.

An analysis of cash transfers under the indemnity only takes account of part of the overall impact of the APF and does not consider other channels through which the APF has influenced the fiscal position. Various rounds of QE since 2009 lowered gilt yields, which meant that the Government issued debt at a lower cost than otherwise. During these periods of QE, the Government issued long maturity debt, meaning that the fiscal benefits were locked in for a long time. At the same time, the introduction of QE changed how banknotes were backed. When the APF began purchasing gilts on a large scale, the Bank decided not to run a separate gilt purchase programme for banknote-backing purposes. As the APF balance sheet expanded, and demand for banknotes continued to grow, banknotes became backed by the gilts held in the APF indirectly.footnote [2] The Bank’s decision in September 2026 formalised these existing balance sheet arrangements.

Chart 1 brings together the analysis from this, and previous, APF Quarterly Reports, illustrating how the combined effects of some of these fiscal implications might evolve. Compared to previous Quarterly Reports, the chart also includes past and projected seigniorage income from Bank Rate earned on the Issue Depositfootnote [3] backing banknotes, which is indirectly backed by gilts in the APF, reflecting the formalisation of these arrangements in the September 2026 announcement. While a proportion of seigniorage income would have arisen irrespective of the APF and is therefore not a direct result of QE and QT, the chart below illustrates the broader range of cash flows between the APF and HMT.

Reflecting the inherent uncertainty in identifying fiscal implications in the past, and projecting into the future, there are multiple possible scenarios which could be used for the debt-servicing costs and seigniorage. The chart shows that under one set of plausible assumptions, the combined fiscal benefits from reduced debt-servicing costs and seigniorage income are likely to significantly offset the net lifetime transfers from HMT to the APF under the indemnity.

Chart 1: Annual debt issuance cost impact, APF cash flows and seigniorage cash flows, and cumulative net fiscal impact in present value terms (a) (b)

The combined impact of APF cash flows, debt issuance cost savings, and seigniorage income is estimated to be between +£40 billion and +£130 billion. This range reflects uncertainty across APF cash flows and the debt-servicing cost impact.

For APF cash flows, the scenarios have been calculated in line with the methodology set out in previous APF Quarterly Reports, with figures updated for 2026 Q3, as detailed below. With the MPC setting a multi-year path for APF unwind, there is no longer uncertainty around the pace of unwind, so the two scenarios simply reflect different assumptions for interest rates, with Bank Rate following market expectations in one, while in the other it falls over time to an estimate of the equilibrium rate.

The methodology for the debt-servicing cost impact is drawn from the analysis in the APF Quarterly Report – 2025 Q3, but has been updated to include all DMO issuance since 2025 Q3, and the updated QT yield impact over the past year. It suggests that the combined effects of QE and QT resulted in lower government borrowing costs by £50 billion–£120 billion on net.footnote [4] A large part of this benefit is still to be realised given the UK’s long debt maturity structure, and the chart is therefore projected far into the future.

The seigniorage estimates shown in Chart 1 comprise both historical data and projections. Historical figures are based on seigniorage income transferred to HMT since the APF was established, totalling around £25 billion to date. For the projection period, seigniorage income is estimated using an assumption for future growth in banknotes in circulation. The contribution from seigniorage subsequently declines as the APF gilts indirectly backing banknotes mature, such that the estimates capture only the seigniorage associated with APF gilt holdings. On this basis, projected future seigniorage associated with APF holdings is around £100 billion, resulting in an estimated cumulative contribution of £125 billion over the lifetime of the APF.

The future trajectory for APF cash flows is highly uncertain. Small changes in interest rates can substantially alter the projected lifetime cash flows from the APF. First, Bank Rate affects the interest payment the APF must make on its loan from the Bank – a rising Bank Rate means there is a smaller surplus of income once interest on the Bank of England loan is paid. Second, interest rates affect the level of the yield curve, which will have an impact on the price received when gilts are sold from the APF. The Bank therefore regularly calculates illustrative projections of future APF cash flows under different interest-rate assumptions. In line with previous APF Quarterly Reports, these are presented in net present value (NPV) terms to allow meaningful comparison between scenarios where cash flows occur at different points in time. Following the MPC's September 2026 decision, there is now greater certainty over the pace of APF unwind, so the scenarios principally illustrate the impact of different paths for interest rates.

There is, of course, significant uncertainty surrounding any estimate of future cash flows, or attempts to quantify the past and future impact of QE and QT on government debt-financing costs. Moreover, these estimates do not include the wider macroeconomic impact of QE which was deployed by the MPC to meet the inflation target in the face of multiple large shocks to the UK economy since the onset of the global financial crisis. In doing so, QE sustained employment and growth, and reduced the tail risks of severe economic downturns, while also supporting gilt market functioning. This macroeconomic support was the most significant effect of QE and generated fiscal benefits.

APF operations in the past quarter

This section contains details of gilt operations conducted for monetary policy purposes during 2026 Q3. It also includes information on gilts lent to the DMO.

Over 2026 Q3, in line with the MPC’s September 2025 decision, five gilt sale operations were conducted. These sales led to a reduction in the stock of gilts held for monetary policy purposes of £4.3 billion. Gilt maturities over the quarter led to a further reduction in the stock of gilts held for monetary policy purposes of £29.3 billion. As of 30 September 2026, the stock of gilts held for monetary policy purposes stood at £488.1 billion.

Summary of holdings

Table A: Summary of stocks in the APF in 2026 Q3 (a) (£ millions)

Chart 2 shows the value of APF gilt holdings over the past two years. Information about historic aspects of the APF’s balance sheet, including the Corporate Bond Purchase Scheme, is available in past APF Quarterly Reports.

Chart 2: Stock of APF gilt holdings (a)

Gilt lending arrangement with the DMO

Gilts purchased for monetary policy purposes via the APF continue to be made available for on-lending to the market through a gilt lending arrangement with the DMO.footnote [5]

The average daily aggregate value of gilts lent by the APF to the DMO during the three months to 30 September 2026 was £2.8 billion. Chart 3 sets out the average daily value of APF gilts lent to the DMO via the gilt lending agreement over the past two years.

Chart 3: Average daily aggregate value of lending of APF gilts to the DMO

APF history and background

Links to additional information related to the APF

Asset Purchase Facility: Gilt Sales – Market Notice 17 September 2026.

Further information regarding the banknote-backing arrangements can be found in the Bank’s 17 September 2026 Insights article The promise to pay: what backs banknotes?.

The Issue Deposit acts as a balancing item on the asset side of the Issue Department balance sheet and an equal liability on Banking Department, for accounting purposes. Having significantly increased in size over the past two decades, it is now the primary banknote-backing asset on Issue Department.

The APF Quarterly Report – 2025 Q3 details the specific QE and QT yield impact assumptions. In particular, the assumed QT yield impact draws from estimates in the Monetary Policy Reports (MPRs) for the: August 2023 MPR (10–15 basis points), August 2024 MPR (10–20 basis points), August 2025 MPR (15–25 basis points) and July 2026 MPR (20–30 basis points). In this analysis, a QT yield impact on the issuance yield of auctions is assumed at: QT year 1 (February 2022–August 2023): +12.5 basis points; QT year 2 (August 2023–August 2024): +15 basis points; QT year 3 (August 2024–August 2025): +20 basis points; and QT year 4 (August 2025–October 2026): +25 basis points. The analysis does not take into account movements in gilt yields following the MPC’s September announcement.

These arrangements were originally confirmed in 2009 and have been updated periodically, including in 2020 and 2025.