The ongoing volatility in the UK gilt market points to a more complex story than the current narrative. While political turbulence — especially the Liz Truss mini-budget in 2022 — has certainly shaken confidence in UK fiscal policy, that explanation alone isn’t sufficient to account for the peculiar behaviour of gilts over the last couple of years. After all, that was three governments ago, and the current one has laid out and thus far stuck to robust fiscal rules.

A less-discussed but plausible explanation is the Bank of England’s quantitative tightening (QT) policy. This policy was introduced the day before the Truss budget, triggering a sell-off in gilts at the time.

The Bank’s decision to actively sell its gilt portfolio into the market, rather than let them mature passively as many other central banks have done, is an unusually assertive form of QT. The intent was to keep the pace of asset reduction steady, but the consequence was the release of a significant number of gilts into the market.

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Normally financial markets can smoothly absorb some additional gilt supply. But with current fiscal deficits and the Bank exiting the market quickly, the share of gilts that the private sector needs to absorb has risen much faster than expected.

There is a natural limit in demand from traditional domestic buyers such as pension funds and insurers, especially in the short term. And international investors have a lot of choice since many comparable countries are issuing a lot of government debt. Offering more gilts to the market in this environment will increase the supply-demand imbalance, with a material effect on gilt yields.

The Bank, for its part, has maintained that the contribution of QT to these effects is limited, citing the gradual and well-signalled nature of the policy. Its own research so far finds only a modest effect on gilt yields.

Yet academic work by Kristin Forbes, a former external member of the Bank’s monetary policy committee (MPC), has painted a different picture, suggesting that the UK’s active QT programme has pushed up long-term yields by about 70 basis points, materially more than in other developed markets.

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The implications for the cost of public debt are significant. Elevated gilt yields mean the Treasury must pay more to borrow, squeezing already limited fiscal space and forcing tough choices on public spending and taxes. When higher yields persist, government interest costs can rise by billions.

This is not to say that QT is the most important contributor to recent gilt market volatility. Fiscal policy and the global bond market environment are probably more important. But the Bank’s actions are likely to have contributed to the build-up of excess supply, amplifying volatility and driving up government borrowing costs.

The implications are hardly academic. Elevated gilt yields squeeze the Treasury’s fiscal space, forcing difficult decisions at a time when headroom is already tight.

Crucially, the Bank has studied QT much less extensively than the effects of quantitative easing. It has lots of data and a public duty to understand the effects of QT. After all, policy should be driven by evidence and more evidence is almost always better. To support credibility, those efforts should be led by independent experts, such as the external members of the MPC.

Markets are shaped not just by numbers and models but by narratives and credibility. If the Bank misjudges the effect of its actions on gilt dynamics, it risks undermining both financial stability and public trust.

The debate is not about blaming one institution or policy, but about recognising that gilt market liquidity, supply and confidence interact in ways that deserve close, ongoing scrutiny. In today’s environment, the need for a clear-eyed assessment of QT’s role has never been greater.

Tomasz Wieladek is chief European macro strategist at T Rowe Price