(Bloomberg) -- The Bank of England may sell all the UK government bonds bought under quantitative easing to better prepare for a future crisis, a move that would put it at odds with the US Federal Reserve.

BOE Deputy Governor Dave Ramsden, who oversees financial markets, said officials may continue running down the QE portfolio, which peaked at £895 billion, even after hitting the “preferred minimum range of reserves.”

The remarks at an event held by the Association for Financial Markets in London shed more light on how the UK central bank is unwinding a stimulus program in place for more than a decade. It’s important to the public finances because the Treasury is underwriting losses incurred on those asset sales.

The BOE has estimated the PMRR sits in the range of £335 billion to £495 billion, but Ramsden insisted the bank could chose to run the QE program, known as the asset purchase facility, all the way down to zero and use different liquidity instruments to meet commercial banks’ financial stability demand for reserves.

“The Monetary Policy Committee could unwind the APF fully, if it judged necessary for policy reasons, and the level of the PMRR should not affect this judgment,” Ramsden said. “Our approach differs from other central banks, notably the Federal Reserve, which aims to maintain its QE portfolio at a level that will back an ‘ample’ level of reserves.”

Ramsden’s comments, which build on similar remarks by Governor Andrew Bailey to lawmakers in December, underline a willingness to shrink central bank’s bond holdings. QE has become a political risk for the bank because losses on the portfolio are covered by the taxpayer under an indemnity agreed when the program was launched in 2009. 

Initially, it made £124 billion of profit – all of which the government has spent. Since October 2022, the program has incurred £49.4 billion of losses, which has been paid by the state. Net losses could reach close to £100 billion over the lifetime of QE, the BOE has warned. 

Ramsden said the portfolio has shrunk to £735 billion under so-called “quantitative tightening,” with the share of government debt down from 35% of to 31%. As well as the Fed, running down bond holdings completely would diverge from the European Central Bank, where a structural bond portfolio is seen providing a portion of the necessary funding. 

Ramsden also said he remains concerned about inflation and has seen no reason to adjust his position on interest rates yet. Ramsden voted to hold rates at 5.25% earlier this month.

“Although services inflation and wages growth have fallen by somewhat more in recent months than we had expected last autumn, key indicators of inflation persistence remain elevated,” he said. “I am looking for more evidence about how entrenched this persistence will be and therefore about how long the current level of Bank Rate will need to be maintained.”

He added that the steep drop in headline inflation to 4% in January from 10.1% a year ago “is undoubtedly encouraging.”

The BOE launched QE in 2009 during the financial crisis to avoid a depression and deflation after rates had been cut to 0.5%, then considered as low as possible. By buying gilts, the BOE reduced longer term borrowing costs, providing further economic stimulus.

As it did so, the BOE’s balance sheet blew up and, including funding support programs for commercial lenders during the pandemic, the volume of BOE reserves reached £1 trillion. The reserves were created by the BOE to buy assets, mainly gilts, and provide cheap funding to lenders. Those arrangements are being run down now.

“It’s important to normalize our balance sheet when we can to ensure we have sufficient headroom to respond to future shocks,” he said. The precise level of reserves will depend on what commercial banks want.

“We do not know precisely where the new normal level of reserves will be, or what the composition of the assets backing those reserves will be,” he said. If QE portfolio is run down completely, the BOE could replace it with other liquidity facilities to meet the PMRR.

“We expect usage of the full set of our liquidity facilities to rise as the level of reserves in the system falls,” Ramsden said. 

“The Bank is committed to providing sufficient reserves to meet its monetary policy and financial stability goals, and expects its facilities, both existing ones and those required by the circumstances of the time, to be used at scale to meet the demand for reserves.”

He stressed that the BOE’s gilt sales under QT are not disrupting financial markets.

--With assistance from Tom Rees, Andrew Atkinson and Greg Ritchie.

(Adds Bailey comments in sixth paragraph; and ECB comparison in eighth paragraph.)

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