Quantitative easing and quantitative tightening explained

Quantitative easing, usually shortened to QE, is what the Bank of England does when it creates new money electronically and uses it to buy gilts, which are UK government bonds, from private investors such as pension funds and insurance companies¹. It was introduced in March 2009 during the Global Financial Crisis, when cutting interest rates alone was not enough to keep the economy moving, and the Bank has used QE to stimulate the UK economy since the 2008 financial crisis¹.

The purpose is to lower the cost of borrowing across the economy when the Bank's main tool, Bank Rate, cannot go any lower. Buying gilts pushes their prices up and their yields down, and those lower yields feed through into the rates households and businesses pay on mortgages, loans and other credit. The reverse process, quantitative tightening or QT, works the other way: the Bank lets its stock of gilts shrink, which puts upward pressure on yields and borrowing costs.

What quantitative easing is: new money used to buy gilts

The Bank of England's own definition is direct: quantitative easing is "when we create new money electronically and use it to buy gilts (government bonds) from private investors such as pension funds and insurance companies"¹. No banknotes are printed. The money exists as central bank reserves, and it is used to purchase existing government bonds from the financial institutions that hold them.

The sellers are not the Government itself. Pension funds, insurance companies and other investors hold large stocks of gilts, and the Bank buys from them in the financial markets. In exchange, those investors receive newly created money, which they can then deploy elsewhere, for example into corporate bonds, shares or lending. The Bank ends up holding the gilt on its own balance sheet, and the private sector ends up holding more money.

The scale of the purchases matters because it is what moves prices. A large, committed buyer in the gilt market pushes gilt prices up, and when the price of a bond rises its yield falls. That fall in yields is the mechanism by which QE reaches the real economy: gilt yields are the reference point for a wide range of other rates, from the interest the Government pays on new borrowing to the rates lenders charge on fixed mortgages. The Bank of England sets the interest rate, which impacts the cost of getting a mortgage, and QE works on the same chain from the financial markets through to household borrowing⁴.

Why the Bank of England turns to QE when interest rates are near zero

The Bank of England's first tool for managing the economy is Bank Rate, the interest it pays on reserves held by commercial banks. Changes in Bank Rate feed through to the rates banks charge each other, and then to the rates households and businesses pay. But there is a floor to how far this can go. Once Bank Rate is close to zero, cutting it further has little effect, and the Bank needs another way to keep borrowing costs down and support spending.

That is the situation in which QE was introduced in March 2009, during the Global Financial Crisis¹. With Bank Rate at a very low level, the Bank bought gilts on a large scale to push down yields across the whole range of maturities, reaching parts of the market that a Bank Rate change alone does not touch. The Bank has used QE to stimulate the UK's economy since the 2008 financial crisis¹.

The same logic runs in reverse when inflation is too high. The Bank of England raises interest rates to make sure inflation comes down and stays low⁵. The recent cycle shows how far that can go: the Bank of England interest rate rose from 0.1% in December 2021 to 5.25% in August 2023⁶, after the Bank raised the base rate eight times in 2022 and once more in early 2023⁷. When rates were raised that far, the question turned from how to add stimulus to how to withdraw it, which is where quantitative tightening comes in.

How QE feeds through to borrowing costs

The link from QE to what a household pays runs through the prices of bonds and the rates lenders set. A variable rate on a loan can change at any point, typically reflecting a change in the Bank of England's base rate⁸. Fixed rates work differently: they are priced off the rates lenders themselves can lock in the financial markets, which move with gilt yields. So QE, which pushes gilt yields down, tends to lower fixed borrowing rates, and QT, which pushes them up, tends to raise them.

The Bank of England publishes quoted interest rate series monthly, calculated as weighted averages for a range of lending and deposit products offered to households⁹. These averages show how the rates on mortgages, loans and savings move together as conditions in the wider market change. The Bank also runs a quarterly Credit Conditions Survey of lenders, covering credit availability, demand, pricing and defaults, which has been conducted since 2007 Q2¹⁰. Together these show the chain: policy changes move market rates, market rates move the rates lenders quote, and those quoted rates reach households.

Borrowing itself responds to those costs. In April 2026, net borrowing through other forms of consumer credit, such as car dealership finance and personal loans, decreased to £1.0 billion, and the annual growth rate for net mortgage lending increased slightly to 3.3% in April from 3.0% in March¹¹. When credit is cheap, households borrow more; when it is expensive, they borrow less. That is precisely the effect the Bank is aiming at when it uses QE or QT.

Gilts explained: the government bonds behind QE

A gilt is a type of bond issued by the government of the United Kingdom with a maturity of one year or more¹². When investors buy one, they are lending money to the British government in exchange for regular interest payments, known as coupon payments, and the promise of repayment of the principal amount at a specific date in the future¹². The term "gilt" is short for "gilt-edged security", which originally referred to the gold-leaf edging on paper certificates¹².

Gilts are considered low-risk investments since they are backed by the UK government, and they are deemed reflective of the "risk-free" rate of return that investors can expect in markets¹². That benchmark role is why they sit at the heart of QE: the yield on gilts is the reference point from which many other rates are measured. When the Bank buys gilts and their yields fall, the effect spreads outward to mortgages, corporate borrowing and savings rates.

Low risk is not the same as no risk. It is not unprecedented for the government to default on these types of bonds: following the First World War the UK restructured its debt and altered the original terms of bonds on issue, and in 1932 the Government requested that investors in the War Loans scheme accept a lower interest payment¹². Gilts also fall in price when yields rise, which is what happened through the recent period of higher rates. Anyone holding gilts directly, or funds that hold them, sees that price movement in the value of their holding.

Quantitative tightening: how QE is reversed

Quantitative tightening is the process of shrinking the stock of money and gilts that QE created. Instead of buying gilts, the Bank either sells them back to the market or holds them to maturity and does not replace them. Either way, the stock of gilts on the Bank's balance sheet falls, and the money created to buy them is withdrawn. The effect on yields works in the opposite direction to QE: with the largest buyer gone, gilt prices face downward pressure and yields face upward pressure.

The recent path of gilt yields shows how much conditions have changed. UK 10-year gilt yields fell from 4.66% on 31 March 2025 to 4.51% on 30 June 2025, and then rose to 4.76% on 30 September 2025³. In September 2026, rising gilt yields reached their highest level since 2007, boosting annuity rates. That rise in yields is the market backdrop against which the Bank's tightening programme operates.

The UK 10-year gilt yield fell between March and June 2025, then rose above its March level by September

For households, the practical meaning of QT is that the downward pressure on borrowing costs that QE provided has been removed and, at times, replaced with upward pressure. The Government recognises that families and businesses are worried about the impact of rising mortgage rates in response to the recent volatility in global markets, particularly those coming to the end of a fixed rate deal¹³. Within hours of each other in September 2026, NatWest, Santander, HSBC, Lloyds Bank and TSB all announced mortgage rate increases, and a second wave of rate hikes from major banks followed amid inflationary concerns and higher swap rates.

QE and Bank Rate: two tools, one inflation target of 2%

QE and Bank Rate are two instruments pointed at the same objective. The Government sets the Bank a target of getting inflation to 2%², and the Bank's statutory objective is monetary, meaning price, and financial stability¹. The Consumer Prices Index is used to set the operational inflation target for UK monetary policy, and also to uprate working-age benefits and tax credits¹⁴. The Bank of England's target rate of 2% is the same figure cited in Scottish Government analysis of the cost of living¹⁵.

The recent record shows how the tools work together. From October 2022 CPI gradually reduced to reach the Bank of England's target rate of 2% by June 2024¹⁶. Inflation then moved around: it went down to 2.6% in June 2026 after a temporary ceasefire in the Middle East led to a drop in petrol and diesel prices², and CPI inflation rose to 3.1% in August 2026. The Bank of England is projecting inflation to peak at 3.2% in Q4 2026¹⁷.

Bank Rate itself has been on a long round trip. It rose from 0.1% in December 2021 to 5.25% in August 2023⁶, and stood at 5.25% in December 2023¹⁸. Interest rates were then lowered three times in 2025 by the Monetary Policy Committee, from 4.75% to 4%¹⁹. Bank Rate is 3.75% now², held at that level on 17 September 2026 for the sixth consecutive meeting, with the MPC voting 6 to 3 and three members preferring a rise to 4%. Central banks usually change their rates by 0.25%, but the Bank can alter Bank Rate by as little or as much as it needs to¹. The inflation target and Bank Rate history are covered in detail on their own pages.

Who decides: the nine-member Monetary Policy Committee

Decisions on Bank Rate, and on the stance of policy that QE and QT support, rest with the Monetary Policy Committee. A group of nine people with a variety of backgrounds are responsible for setting Bank Rate². Five of them are already employees of the Bank, called internal members, and four are people from outside the Bank who have relevant knowledge or experience, called external members¹. The Chancellor appoints the committee's four external members for a fixed term, and the Governor appoints the Chief Economist after consultation with the Chancellor¹.

The membership structure is set out in the Bank of England Act 1998, and the decision-making structure in the Bank of England and Financial Services Act 2016¹. The current arrangements for how decisions are made and published follow recommendations by the 2014 Warsh Review¹.

The MPC meets to look at the evidence and make a decision about every six weeks², which works out as eight times a year¹. The decision, with minutes of the meetings, is published at midday on the Thursday¹. Every three months the Bank publishes the Monetary Policy Report, setting out its analysis². Since 2015 the committee's second and final meetings have been recorded, and transcripts of these are published after an eight-year delay¹. Before some decisions the Bank is given exceptional early access to official statistics: it was granted exceptional pre-release access to an estimate of consumer price inflation data at 10:00am on Monday 14 September 2026, ahead of the MPC meeting that week²⁰. The Monetary Policy Committee page covers the committee's workings in full.

What QE and QT mean for mortgages and savings

For mortgage borrowers, the era of QE was one of very cheap fixed deals, and the era of tightening has been one of rising costs. The Bank of England sets the interest rate, which impacts the cost of getting a mortgage⁴. Fixed mortgage rates are priced off gilt and swap rates rather than Bank Rate alone, which is why lenders repriced deals higher in September 2026 even as the MPC held Bank Rate unchanged. The Government's mortgage charter recognises the pressure on households coming to the end of fixed deals¹³.

Regulation adds a layer of protection on top. Under the FCA's responsible lending rules, a mortgage lender must assume that interest rates will rise by a minimum of 1% over the first five years of the regulated mortgage contract, even if the basis used indicates rates are likely to fall or rise by less than 1%²¹. That stress test exists precisely because the rate a borrower starts on is not guaranteed to last. Buy-to-let lending shows both sides of the cycle: the number of buy-to-let mortgage products stood at 3,277 in October 2024, the highest level since June 2022 after a fifth consecutive monthly increase²², and buy-to-let mortgages in arrears were down by 5.5% from the previous quarter in Q2 2025²³. Forecasts of loans in arrears and repossession draw on a range of economic scenarios based mainly on forecast data from the Office for Budget Responsibility, with Oxford Economics used for comparison²⁴.

For savers, the same forces work in reverse. QE held savings rates down; tightening lifted them. Savings rates move with the market: NS&I states that the rate on its Direct Saver is variable and can change up or down from time to time, for example when the Bank of England base rate changes or when rates in the general savings market change²⁵, and the same applies to its Direct ISA²⁶. But a higher nominal rate is not the whole story. If inflation is higher than the interest rate you earn, the spending power of your savings may still decrease²⁷. FCA rules require firms to show a generic example of how inflation erosion would affect a cash holding, and the Consumer Prices Index may be used as a measure of the current inflation rate for that example²⁸. The interaction is covered on savings and inflation.

Debt costs cut both ways too. Over-indebtedness results in costs to the wider economy, for example through lost productivity or increased crime²⁹. When borrowing costs rise, households carrying debt feel it first, which is why the Bank watches arrears and defaults through its Credit Conditions Survey¹⁰. Free, impartial help with debt is available from debt advice services, and the borrowing costs page sets out typical rates on credit cards, overdrafts and personal loans.

Where the Bank of England stops: no accounts, no investments

The Bank of England is the UK's central bank and a publicly owned body³⁰. It is not a high street bank and does not serve the public in the way a commercial bank does. It will never offer savings accounts, investments, cryptoassets or "guaranteed returns", and it does not provide investment advice or endorsements³¹. The Bank of England and its staff do not endorse, promote or advertise financial products³¹.

That matters because the Bank's name is used in scams. The Bank will never contact you about unclaimed estates, refunds, fines or warrants, never ask you to move money "for safety" or to "release funds", never verify your identity by requesting National Insurance numbers or bank statements unless you are exchanging banknotes with it, and never contact you from personal email addresses³¹. Anyone approached in the Bank's name with an investment or savings offer is dealing with a fraudster; the scams and fraud page explains where to report it.

For everyday money, the institutions to look to are the banks, building societies and savings providers listed in the banks directory, with savings accounts and ISAs explained on their own pages. The Bank of England's role is different: it sets the price of money, and everything on this page, from QE to QT to Bank Rate, is that role in action.