The Bank of England has overseen a substantial reduction in the UK's central bank reserves, with the total stock decreasing by £63.2 billion between March 2025 and the end of February 2026. This brings the total reserves down from £706.7 billion to £643.5 billion, a clear indication of the ongoing quantitative tightening (QT) programme.
This reduction was primarily driven by the sale and maturity of assets held through the Asset Purchase Facility (APF), alongside contributions from maturities and repayments of Term Funding Scheme with additional incentives for SMEs (TFSME) drawings. As of February 2026, the APF's gilt holdings, valued at initial purchase price, stood at £529.1 billion, down from £645.7 billion in 2025.
Bank Rate Holds Steady Amid Inflation Hopes
In a closely watched decision, the Monetary Policy Committee (MPC) voted by a majority of 5–4 to maintain Bank Rate at 3.75% at its meeting ending on 4 February 2026. This follows a series of reductions totalling 150 basis points since August 2024, with Bank Rate having been 4.50% in March 2025.
The decision to hold comes as CPI inflation, which was 3.0% in January 2026, is anticipated to fall back to around the 2% target from April 2026. This forecast is partly attributed to developments in energy prices and measures introduced in Budget 2025. The Bank's market operations, as they put it, 'implement Monetary Policy Committee (MPC) decisions by transmitting Bank Rate and managing assets held by the Asset Purchase Facility (APF)'.
The Pace of Quantitative Tightening
The MPC's strategy for reducing its bond holdings continues, albeit at a measured pace. At its September 2025 meeting, the committee outlined plans to reduce the stock of UK government bonds held for monetary policy purposes by £70 billion over the 12-month period from October 2025 to September 2026. This reduction is to be achieved through both gilt sales and maturities.
It's worth noting that this £70 billion target represents a slower pace of quantitative tightening compared to earlier suggestions, which had hinted at a £100 billion reduction. This adjustment suggests a cautious approach, balancing the need to unwind the balance sheet with broader economic stability concerns.
Market Liquidity and Treasury Transfers
Beyond the headline figures, the Bank's operations also reflect ongoing market activity. The use of facilities like the Indexed Long-Term Repo (ILTR) and Short-Term Repo (STR) increased over the period. Outstanding drawings in the ILTR rose from £9.5 billion to £69.9 billion, with 79 firms utilising it by February 2026. Similarly, STR usage saw outstanding drawings climb from £50.3 billion to £97.0 billion.
In terms of public finances, all transfers during the 2025/26 period were made from HM Treasury to the Asset Purchase Facility Fund Limited, totalling £16.7 billion. This contrasts with £36.3 billion transferred in 2025, indicating a shift in the flow of funds related to the APF's operations.
What this means for you
With Bank Rate at 3.75%, savers may find interest rates on deposit accounts more appealing than in recent years. However, it's crucial to consider the tax implications. Interest earned on standard savings accounts is subject to tax above your Personal Savings Allowance (PSA) – £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. For larger sums, or for those looking to maximise tax efficiency, alternatives like a Cash ISA should be considered, offering tax-free interest. First-time buyers saving for a deposit might also explore a Lifetime ISA, which provides a 25% government bonus on contributions up to £4,000 per year, effectively adding up to £1,000 annually to your savings.
But there are risks
The split vote within the MPC, with four members advocating for a 0.25 percentage point reduction in Bank Rate, highlights differing perspectives on the current restrictiveness of monetary policy. While inflation is projected to fall, the debate suggests ongoing uncertainty about the optimal path forward. A slower pace of quantitative tightening, while potentially easing market pressure, also means the Bank's balance sheet reduction will take longer, a point that some might view as a prolonged intervention in the gilt market.
When Effective
The Bank Rate decision to hold at 3.75% was effective from 4 February 2026. The reserves reduction and quantitative tightening measures have been ongoing throughout the March 2025 – February 2026 period, with the £70 billion QT plan scheduled from October 2025 to September 2026.
Where to Get Help
For detailed information on the Bank of England's operations and monetary policy, their official website is the primary resource. For personal financial planning, particularly regarding savings and investments, seeking independent financial guidance is always recommended.
Sources
- Bank of England — Official Market Operations Report (March 2025 – February 2026)
- Monetary Policy Committee — Meeting Statement (4 February 2026)
This is not financial advice. Seek independent financial guidance. Interest on standard accounts may be subject to tax above your Personal Savings Allowance.