Asset Purchase Facility Quarterly Report - 2025 Q4

Overview

This Report contains information on the Bank of England’s Asset Purchase Facility (APF) for 2025 Q4.

The APF’s stock of gilt holdings and changes from 1 October 2025 to 31 December 2025 are detailed in the section ‘APF operations in the past quarter’. These gilts are held in the APF for monetary policy purposes, and decisions on the stock are monetary policy decisions for the Monetary Policy Committee (MPC). 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 HM Treasury (HMT) under the APF indemnity.

The section ‘Cash-flow arrangements between the APF and HM Treasury’ discusses the movement of cash due to the indemnity arrangement in place between the APF and HMT. 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.^{footnote [1]} 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 2025 Q4, the APF had transferred £23.8 billion to HMT, in net terms, with further cash flows from HMT to the APF likely necessary until the end of APF unwind. However, this 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.

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 focusing on the fiscal benefits of lower debt servicing costs and a potential path for cash transfers. 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. However, the chart shows that under one set of plausible assumptions, the fiscal benefits of QE from reduced debt-servicing costs significantly, or fully, offset the net lifetime transfers from HMT to the APF under the indemnity.

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

Footnotes

• (a) This chart uses a subset of the scenarios presented further in the Report, specifically the Scenario 2A (market path) of cash flows, and the four-year taper scenario for the debt-servicing cost analysis from the APF Quarterly Report – 2025 Q3. Using the 1B or 2B (equilibrium interest rate) scenario for cash flows would reduce future negative cash flows, while using the one-year taper scenario for the debt-servicing cost would reduce the size of the fiscal benefit.

The figures for the debt-servicing cost impact are drawn from the analysis in the APF Quarterly Report – 2025 Q3. This suggested that the combined effects of QE and QT resulted in lower government borrowing costs by £50 billion–£125 billion on net.^{footnote [2]} 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 scenario for APF cash flows has been calculated in line with the methodology set out in previous APF Quarterly Reports, with figures updated for 2025 Q4, as detailed in the section ‘Cash-flow arrangements between the APF and HM Treasury’. These estimates suggest that net lifetime cash flows could be -£115 billion if interest rates evolve in line with market expectations, or -£55 billion if they fall over time to an estimate of the neutral rate. While these scenarios assume a constant £32 billion pace of annual sales, different unwind paces do not significantly alter lifetime cash flows on a discounted basis.

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.

More information on what the APF is and what it does is available in our Market Operations Guide. A short timeline describing the history of the APF is provided as background at the end of the Report.

APF operations in the past quarter

This section contains details of UK government bond (gilt) operations conducted for monetary policy purposes during 2025 Q4. It also includes information on gilts lent to the Debt Management Office (DMO).

At its September 2025 meeting, the MPC voted to reduce the stock of gilts held in the APF by a further £70 billion over the 12-month period from October 2025 to September 2026, comprising both maturing gilts and sales.

Over 2025 Q4, in line with the MPC’s September 2025 decision, the Bank continued with the sale of the APF’s stock of gilts held for monetary policy purposes. A total of five gilt sales were run across October and November 2025. These sales led to a reduction in the stock of gilts held for monetary policy purposes of £4.9 billion. No gilt maturities occurred over 2025 Q4. As of 31 December 2025, the stock of gilts held for monetary policy purposes stood at £553 billion.

The Bank has published the schedule for gilt sales in 2026 Q1.

Summary of holdings

Chart 2 shows the cumulative net value of APF transactions between the establishment of the APF in 2009 and the end of 2025 Q4.

Chart 2 is separated into two panels with different scales. Gilt purchases and the Term Funding Scheme (TFS) – which from 2016 to 2019 was on the APF balance sheet before its transfer to the Bank’s balance sheet – are on the left panel.^{footnote [3]} The legacy corporate bond and commercial paper schemes that have been operated via the APF balance sheet are shown on the right panel.

Chart 2: Cumulative APF purchases by type: amounts outstanding ^{(a) (b)}

Footnotes

• Source: Bank of England.
• (a) Data based on settled transactions.
• (b) On 21 January 2019 the TFS drawings were moved to the Bank’s balance sheet and therefore are not reported after this date.

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 [4]}

The average daily aggregate value of gilts lent by the APF to the DMO during the three months to 31 December 2025 was £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.

With effect from 2026 Q1, the Bank and the DMO have jointly agreed to increase the amount of the APF’s stock available to the DMO from 5% to 10% of its total nominal holdings. This increase is a precautionary measure to ensure a sufficient supply of remaining APF gilts is available for on-lending to the market, if required, as the size of the APF continues to fall.

The Bank and the DMO have also jointly agreed to increase the maximum term that the DMO can on-lend to the market gilts with a maturity date of less than three years from one week to three months. The maximum term of on-lending remains at one week for gilts with a maturity date of three years or greater.

The Bank and the DMO continue to keep these arrangements under periodic review.

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

Cash-flow arrangements between the APF and HM Treasury

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 Quarterly Bulletin article from 2022^{footnote [5]} and have been explained in previous APF Quarterly Reports.

Between 2009 and 2022, the APF’s activities generated positive net cash flows from the APF to HMT, peaking at a cumulative £123.9 billion at end-September 2022. Since then, cash flows have been paid by HMT to 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 or negative 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 to the private sector.

Chart 4 provides an updated summary of actual cash flows to date and illustrative projections into the future. In light of the considerable uncertainty around future cash flows, the projections are based on a set of scenarios for the MPC’s approach to unwind, reflecting the MPC’s annual review process, and the path for Bank Rate. In all scenarios, the stock of gilts is assumed to reduce by a total of £70 billion in the year to September 2026, through a combination of maturities and sales, in line with the MPC’s preferred approach to unwind over this period.

From October 2026 onwards, the scenarios then assume:

• 1A: APF unwinds by £70 billion per year, with Bank Rate following the market path.
• 2A: APF unwinds by a £32 billion constant sales pace plus maturities per year, with Bank Rate following the market path.
• 1B: APF unwinds by £70 billion per year, with Bank Rate falling gradually over the coming three years back to a level equal to the estimated equilibrium interest rate and then remaining at that level for the remaining life of the APF.^{footnote [6]}
• 2B: APF unwinds by a £32 billon constant sales pace plus maturities per year, with Bank Rate falling to the same equilibrium rates as in Scenario 1B.

These illustrative projections are highly sensitive to the assumptions used and are in no way reflective of the MPC’s future considerations regarding APF unwind.

In line with previous APF Quarterly Reports, net present value (NPV) figures have also been provided to allow for meaningful comparison between scenarios where cash flows occur at different points in time. In Scenarios 1A and 2A, the NPV from cash flows is approximately -£115 billion. In Scenarios 1B and 2B, the NPV from cash flows is approximately -£55 billion.

These figures demonstrate that different unwind paces do not necessarily alter lifetime cash flows, on a NPV basis, and that the path of interest rates has a more important influence on them. It is, however, true that holding onto bonds for a longer period increases the interest rate risk, in terms of the range of possible outcomes for lifetime APF cash flows. A relatively faster pace of QT therefore has the benefit of reducing the interest rate risk borne by the public sector.

Chart 4: APF cash flows (actual and projected) ^{(a) (b) (c) (d)}

Footnotes

• Sources: Bloomberg Finance L.P. for market rates as at 31 December 2025 and Bank calculations for data in relation to APF cash flows.
• (a) The stock of assets used for the projection of cumulative cash flows is based on holdings as at 31 December 2025, consistent with the holdings reported in Table A.
• (b) In all scenarios, the stock of gilts is assumed to reduce by a total of £70 billion in the year to September 2026 in line with the MPC’s September 2025 decision.
• (c) NPV calculations based on end-December 2025 data.
• (d) The methodology supporting these quarterly projections is subject to regular review.

APF history and background

The following is a summary of some of the key milestones in the history of the APF since its establishment in 2009. The APF sits in a wholly-owned Bank of England subsidiary company – The Bank of England Asset Purchase Facility Fund Limited (BEAPFF).

• 19 January 2009 Chancellor’s Statement announcing the intention to set up an asset purchase programme.
• 29 January 2009 Establishment of the APF Fund (exchange of letters between the Bank and HMT).
• 9 November 2012 HMT announces the transfer of gilt coupon payments to the Exchequer (exchange of letters between the Bank and HMT).
• 3 August 2016 MPC agrees to expand the APF by launching a Term Funding Scheme (TFS) and a Corporate Bond Purchase Scheme (CBPS) (exchange of letters between the Bank and HMT).
• 21 June 2018 Bank and HMT agree new capital and income framework codified by a new Memorandum of Understanding.
• 21 January 2019 TFS drawings (and collateral) transferred from the APF to the Bank of England’s balance sheet.
• 19 March 2020 MPC agrees to expand the APF with a £200 billion increase to the stock of UK gilts and sterling non-financial investment-grade corporate bonds to reach £645 billion. This was followed by the MPC deciding to expand the APF with a £100 billion increase in June 2020, and then a further £150 billion in November 2020, bringing the total stock of asset purchases to £895 billion.
• 2 February 2022 MPC votes to begin to reduce the stock of UK gilt purchases by ceasing to reinvest maturing assets, and the stock of sterling non-financial investment-grade corporate bond purchases by ceasing to reinvest maturing assets and by a programme of corporate bond sales.
• 21 September 2022 MPC votes to begin sales of the stock of gilts held in the APF. Gilt sales subsequently began on 1 November 2022 with an unwind pace of £80 billion by September 2023.
• 28 September 2022 The Bank announced it would undertake purchases of UK government bonds under its financial stability mandate. Purchases concluded as planned on 14 October. Sales of this portfolio began on 29 November 2022 and were concluded on 12 January 2023.
• 6 June 2023 the Bank announced that it had completed its sales of sterling non-financial investment-grade corporate bonds.
• 20 September 2023 MPC votes to unwind the APF by £100 billion over the period from October 2023 to September 2024.
• April 2024 APF corporate bond portfolio reached full maturity. From this point onwards, the stock of corporate bonds held in the APF was zero.
• 18 September 2024 MPC votes to unwind the APF by £100 billion over the period from October 2024 to September 2025.
• 17 September 2025 MPC votes to unwind the APF by £70 billion over the period from October 2025 to September 2026.

Links to additional information related to the APF

• Exchange of letters between the Bank and HMT, 17 February and 3 March 2009.
• Asset Purchase Facility Annual Report 2024/25.
• Asset Purchase Facility Quarterly Report – 2025 Q2.
• Asset Purchase Facility Quarterly Report – 2025 Q3.
• Exchange of letters between the Governor and the Chancellor on the Asset Purchase Facility – November 2025.

Next publication date: 5 May 2026

ISSN 2041-1936