Original title: the Bank of England is getting tougher, and there is still a "trick" in addition to raising interest rates.

The Bank of England's plan to scale back its bond purchases is becoming the focus of attention as investors increase their bets to raise interest rates. The move will reverse more than a decade of support for the gilt market. Goldman Sachs GroupThe Bank of England is expected to stop buying bonds after February. A total of 37 billion pounds of gilts are due in 2022.

Interest rates are expected to rise ahead of schedule, and the market expects the Bank of England to stop buying bonds.

Investors now expect the Bank of England to raise its benchmark interest rate to 0.5% in February. On top of that, the Bank of England is likely to withdraw gilts maturing in its £775 billion asset purchase programme from its portfolio without replacing them. As inflationary pressures accumulate and officials are increasingly assertive, some investors expect this to happen as early as March, when 28 billion pounds of gilts mature.

The Bank of England's bond-buying programme is scheduled to end in December, a worrying prospect for the market. According to the Office of Budget responsibility (Office for Budget Responsibility), the central bank has bought about 1/3 of government bonds since the financial crisis began in 2009.

The rate of repricing is astonishing. In just four weeks, the market advanced the expectation that the BoE's key interest rate would reach 0.5 per cent by nine months, driven by Andrew Bailey, the policy maker, who said at the weekend that the BoE would "have to take action" to curb inflationary forces.

The Bank of England may stop buying back billions of maturing gilts

Number of maturing treasury bonds

Of course, it is not clear when the Bank of England will start raising interest rates. Strategists are divided over how policymakers will respond when key interest rates reach the threshold set in the monetary policy report in August. However, data show that the Bank of England could scale back its bond purchases by as much as £37 billion by the end of 2022.

Craig Inches, head of interest rates and cash at Royal London Asset Management, says that if the key rate reaches 0.5 per cent, it will definitely be different next year. The market may face a rapid increase in auction volume, which investors need to digest. "

The money market expected the Bank of England to raise interest rates to 0.5% nine months ahead of schedule.

Expectations for Bank of England interest rates (September 22)

Interest rate expectations for the Bank of England (Wednesday)

Hawkish central banks raise concerns about Britain's economic recovery

This adds to a complex picture for traders, who are weighing the risk that austerity policies are starting to weaken Britain's fragile economic recovery. The survey shows that Britain's economic growth forecast for next year has been cut by 0.4 percentage points to 5.1%, the sharpest decline among Europe's major economies.

"I think stopping bond buying in March is a very bold step and a very tough step," said Theo Chapsalis, head of UK interest rate strategy at NatWest Markets Plc. I think this will have a very negative impact on the market. He said the move could lead to a 15-20 basis point sell-off in gilts across the market.

Analysts at Goldman Sachs Group Group (Goldman Sachs Group Inc.) are more optimistic. They expect the Bank of England to stop buying bonds after the February meeting, but the bank expects the move to have a "very limited impact on financial conditions".

Royal Bank of CanadaEurope Ltd said that given the "uncertainty" of the impact of austerity, the Bank of England may suspend raising interest rates after this step. At the same time, Bank of America CorporationIt said it was highly likely that the Bank of England would choose to buy back about half of the bond yields maturing in March to prevent excessive "aggressive" tightening.

It may be difficult for the Bank of England to suspend inflation, and the central bank meeting will be concerned under the risk of austerity.

UK inflation fell unexpectedly last month, but this may be a temporary respite for investors and is unlikely to stop the Bank of England from raising interest rates, possibly as soon as next month. The ONS said CPI rose 3.1 per cent in September from a year earlier, down from 3.2 per cent in August. Analysts had expected CPI to rise 3.2% in September from a year earlier, but 11 of the 34 analysts surveyed expected price growth to slow.

Overall, the figures did little to change expectations that the Bank of England would be the first major central bank to raise interest rates, which are now expected to rise to 1 per cent around the middle of next year. The Bank of England has said it will consider selling its holdings of gilts directly on that basis. "We have to consider the possibility that they will actually sell these bonds in a few months' time," said Chatore, a desk strategist at Nomura International. This is a big deal. "

At present, the market is closely watching the Bank of England's monetary policy meeting on November 4. The Bank of England is expected to raise interest rates and is fully digested by the market, while the risk of the central bank stopping bond purchases and slowing inflation data put pressure on the pound, amid concerns that the Bank of England's efforts to curb inflation will affect the economic growth outlook. It also further breaks the link between expected interest rate hikes and currency appreciation.