For the most part, when people think about the Bank of England and what it does to control the economy, they think about interest rates.

And that’s quite understandable. After all, influencing inflation by raising or lowering the prevailing borrowing costs across the UK has been the Bank’s main tool for the vast majority of its history. There are data series on interest rates in the Bank’s archives that go all the way back to its foundation in 1694.

But depicting the Bank of England as being mostly about interest rates is no longer entirely true. For one thing, these days it is also in charge of regulating the financial system. And, even more relevant for the wider economy, it is engaged in another policy with enormous consequences – both for the markets and for the public purse. But since this policy is pretty complex, few outside of the financial world are even aware of it.

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That project is quantitative easing (QE) or, as it’s better known these days, quantitative tightening (QT).

You might recall QE from the financial crisis. It was, in short, what the Bank did when interest rates went down to zero and it needed an extra tool to inject some oomph into the economy.

That tool was QE. Essentially it involved creating money (printing it electronically) to buy up assets. The idea was twofold: first, it means you have more money sloshing around the economy – an important concept given the Great Depression of the 1930s had been associated with a sudden shortage of money. Second, it was designed to try to bring down the interest rates prevailing in financial markets – in other words, not the interest rate set by the Bank of England but the yields on long-dated bonds like the ones issued by the government.

So the Bank printed a lot of money – hundreds of billions of pounds – and bought hundreds of billions worth of assets. It could theoretically have spent that money on anything: stocks, shares, debt, housing. I calculated a few years ago that with the sums it forked out, it could theoretically have bought every home in Scotland.

But the assets it chose to buy were not Scottish homes but government bonds, mostly, it said back at the time (this was 2009) because they were the most available liquid asset out there. That had a couple of profound consequences. The first was that from the very beginning QE was a technical policy most people didn’t entirely understand. It was all happening under the radar in financial markets. No one, save for the banks and funds selling government bonds (gilts, as they’re known) ever saw the money. The second consequence is that we’re starting to reckon with today.

Roll on a decade-and-a-half and the Bank of England had about £895bn worth of bonds sitting on its balance sheet, bought during the various spurts of QE – a couple of spurts during the financial crisis, another in the wake of the EU referendum and more during COVID. Some of those bonds were bought at low prices but, especially during the pandemic, they were bought for far higher prices (or, since the yield on these bonds moves in opposite directions to the price, at lower yields).

Then, three years ago, the Bank began to reverse QE. That meant selling off those bonds. And while it bought many of those bonds at high prices, it has been selling them at low prices. In some cases it has been losing astounding amounts on each sale.

Take the 2061 gilt. It bought a slug of them for £101 a go, and has sold them for £28 a piece. Hence realising a staggering 73% loss.

Tot it all up and you’re talking about losses, as a result of the reversal of QE, of many billions of pounds. At this point it’s worth calibrating your sense of these big numbers. Broadly speaking, £10bn is a lot of money – equivalent to around an extra penny on income tax. The fiscal “black hole” Rachel Reeves is facing at the forthcoming budget is, depending on who you ask, maybe £20bn.

Well, the total losses expected on the Bank of England’s Quantitative Tightening programme (“tightening” because it’s the opposite of easing) is a whopping £134bn, according to the Office for Budget Responsibility.

Now it’s worth saying first off that, as things stand at least, not all of those losses have been crystallised. But over time it is expected to lose what are, to put it lightly, staggering sums. And they are sums that are being, and will be paid, by British taxpayers in the coming years and decades.

Now, if you’re the Bank of England, you argue that the cost was justifiable given the scale of economic emergency faced in 2008 and onwards. Looking at it purely in terms of fiscal losses is to miss the point, they say, because the alternative was that the Bank didn’t intervene and the UK economy would have faced hideous levels of recession and unemployment in those periods.

However, there’s another, more subtle, critique, voiced recently by economists like Christopher Mahon at Columbia Threadneedle Investments, which is that the Bank has been imprudent in its strategy of selling off these assets. They could, he argues, have sold off these bonds less quickly. They could, for that matter, have been more careful when buying assets not to invest too wholeheartedly in a single class of asset (in this case government bonds) that might be sensitive in future to changes in interest rates.

Most obviously, there are other central banks – most notably the Federal Reserve and European Central Bank – that have refrained from actively selling the bonds in their QE portfolios. And, coincidentally or not, these other central banks have incurred far smaller losses than the Bank of England. Or at least it looks like they have – trying to calculate these things is fiendishly hard.

But there’s another consequence to all of this as well. Because if you’re selling off a load of long-dated government bonds then, all else equal, that would have the tendency to push up the yields on those bonds. And this brings us back to the big issue so many people are fixated with right now: really high gilt yields. And it so happens that the very moment Britain’s long-term gilt yields began to lurch higher than most other central banks was the moment the Bank embarked on quantitative tightening.

But (the plot thickens) that moment was also the precise moment Liz Truss’s mini-budget took place. In other words, it’s very hard to unpick precisely how much of the divergence in British borrowing costs in recent years was down to Liz Truss and how much was down to the Bank of England.

Either way, perhaps by now you see the issue. This incredibly technical and esoteric economic policy might just have had enormous consequences. All of which brings us to the Bank’s decision today. By reducing the rate at which it’s selling those bonds into the market and – equally importantly – reducing the proportion of long-dated (eg 30 year or so) bonds it’s selling, the Bank seems to be tacitly acknowledging (without actually quite acknowledging it formally) that the plan wasn’t working – and it needs to change track.

However, the extent of the change is smaller than many would have hoped for. So questions about whether the Bank’s QT strategy was an expensive mistake are likely to get louder in the coming months.

The Bank of England has announced it is scaling back the rate at which it is selling bonds into the financial market as part of its quantitative tightening programme.

The Bank’s Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4% at its September meeting, but more controversial still is its annual decision over the reversal of its crisis-era quantitative easing programme.

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Over the last two years, the Bank has been in the midst of actively selling off bonds bought during the financial crisis and COVID-19, as part of its economic rescue measures. Those amounts were averaging out at £100bn a year.

Today, the Bank announced it is reducing the annual sale rate to £70bn a year.

It has also announced it will, in future, be selling fewer long-dated government bonds.

“The new target means the MPC can continue to reduce the size of the Bank’s balance sheet in line with its monetary policy objectives while continuing to minimise the impact on gilt [government bond] market conditions,” said governor Andrew Bailey.

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On the interest rate decision, Mr Bailey said, “We held interest rates at 4% today. Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”

The decision was not unanimous, with two of the seven MPC members voting to cut the base interest rate by 0.25 percentage points.

For Donald Trump, today was primarily about one thing.

Before boarding Air Force One to make the transatlantic flight to the UK, he told reporters on the White House Lawn: “It’s to be with Prince Charles and Camilla, they’re friends of mine for a long time… you’re going to have some great pictures, it’s going to be a beautiful event.”

Britain delivered. After a military welcome, lunch with the King and Queen and a Red Arrows flypast, the president has already got more than enough photographs to admire on the plane back home. Luckily, pomp and circumstance is something we do well.

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But this was not an altruistic display. These things rarely are. As British governments have done in the past, the Starmer team leveraged Britain’s soft power to advance its own aims. Beyond the fanfare, Starmer wants to catch the president’s ear on foreign policy issues, including Gaza and Ukraine. But they are also there to talk money: investment and trade.

On trade, we faltered. The US refused to budge on its 25% tariff imposed on the aluminium and steel Industry (a reminder perhaps that no amount of tea with the King will get the US to act against its interests).

But in the arena of investment, the British government is already declaring victory. Trump arrived in Britain along with a who’s who of the US tech scene.

Jensen Huang, chief executive of the AI chipmaker Nvidia, Apple’s Tim Cook, Microsoft’s Satya Nadella, and Sam Altman of OpenAI all made the journey over. Today, they are attending a state dinner at Windsor Castle along with the president but they had other reasons for coming too.

Many of them were here to announce major investments, running into the tens of billions of pounds, to build AI data centres in the UK under a new US-UK tech deal.

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These are private investments but the government is viewing them as a win for Starmer. His administration is – like the one before it and the one before that – scrambling to unlock economic growth in the UK. It is pinning its hopes on the transformational promise of AI.

The prospect of greater economic growth, productivity and jobs is an alluring one for Britain and, indeed, most of Western Europe’s ailing economies. The hope is that these investments will build the digital infrastructure needed to turbocharge the AI industry in the UK.

The government said the deals, which came from Nvidia, Microsoft, OpenAI, Google among others, were a “vote of confidence in the UK”. And there are, of course, compelling reasons why Britain’s existing AI ecosystem is attracting these companies. It has little to do with the King.

World-class researchers, universities and scientific research have contributed to an ecosystem in Britain that is ripe for take off. Deep Mind was perhaps the most famous success story, a company that Google swooped in to acquire in 2014.

That is something Jensen Huang, chief executive of Nvidia was keen to remind us. Ahead of his trip to Windsor, he expressed surprise at Britain’s sometimes dysphoric attitude about its own capabilities.

“This week we’re here to announce that the UK is going to be a superpower… but you know, Britons can be a bit humble, even deprecating, about their successes. Really, this is a moment to celebrate the UK ecosystem.”

He said that Britain was at the cusp of a new Industrial Revolution, and it should seize the moment.

“This is the home of the origins of artificial intelligence and some of the brightest minds in AI are here. So the expertise of creating artificial intelligence and creating and training large language models is deep here.”

The UK has obvious expertise and appeal. It is the third largest AI market in the world, after the US and China. It is home to a third of Europe’s AI start-up companies and twice as many as any other European country.

Where it falters is infrastructure. High energy costs and a creaking grid are holding back growth in data centres. The government has promised to rectify this (which has caught the attention of the tech giants, hungry as they are for energy and computational power). The deal with the US will also see both sides cooperate to expand nuclear energy in the UK.

Not everyone is comfortable with all this attention from the Americans, however. US dollars will help to fund the expansion in data centres, but US AI companies like OpenAI, which is partnering with Nvidia and Nscale to open a data centre in Blyth, will be at the forefront of the opportunities too.

Open AI will secure the access to infrastructure, energy and computing power to run and train its models. Meanwhile Nvidia will provide the chips. Nscale, the British data centre company, is set for huge growth but, where France boasts Mistral, the UK has no comparable national AI champion. For all the claims of “sovereign AI”, some may wonder whether building data centres in the UK is enough to give us sufficient control over this powerful new industry, when so much of the technology is American.

Speaking to Sky News, Mr Huang batted away those concerns.

“Sovereign AI starts with having your sovereign data… you have lots of your own data,” he said. “The data of your people, of your companies, of your society. That data is created here. It belongs to you. You should use it to train your own large language models. There’s going to be a whole bunch of different AI models being created here, and I have every confidence, so long as we provide the instrument of the science.”