matured by the end of the programme, and had already been largely replaced by additional gilt purchases. the cumulated dividends are not the profits on the portfolio, even before funding costs. depending on such factors as the yield curves at the date of issue and purchase, and the maturity of the gilts ; the dividends and market prices of the gilts are connected. see the dmo website for more information on changes in gilt prices : http : / / www. dmo. gov. uk / documentview. aspx? docname = publications / investorsguides / pig201204. pdf & page = in vestor _ guide / guide. eventual exit strategy at this time, it is not clear whether the next step with the asset purchase programme is most likely to be to sell the assets back or to buy more. the bank is prepared for either but it might be particularly helpful to set out in advance a few thoughts on the eventual exit strategy. after purchasing £200bn of assets in just under a year, the mpc paused its programme of asset purchases in february 2010. the bulk of the medium - term impact from the asset purchases should come from the stock of purchases not the flow. there will be approximately £200bn extra money stimulus in the system, until the mpc decides to withdraw it ( or to increase it ). when the time does come to unwind the purchases, the mpc will face a number of difficult decisions. first, it will have to decide at what point monetary policy should be tightened. that decision will, as with any decision to expand the purchases further, be judged on a month - bymonth basis, taking into consideration developments in the economy, and the outlook for our mandated target, cpi inflation. as the governor said in june 13, when the mpc does want to tighten policy, it is most likely to raise interest rates first. gilt sales would be started later and conducted in an orderly programme over a period of time. that would leave bank rate as the active or “ marginal ” instrument of monetary policy. second, the mpc will have to decide how fast to sell the gilts. again, that would depend on the outlook for inflation at the time, so we cannot commit now to any particular scale or pace. but it is not in the interests of the uk economy to generate unnecessary volatility in the gilt market. we will therefore be working closely with the dmo 14

so as to plan any extra sales operations that would be needed, with the intention of creating minimum disruption to the market consistent with meeting the mpc ’ s desired exit path. a portfolio of £200bn of gilt purchases has a market value which constantly varies as market prices change. currently there is a large “ mark - to - market ” positive accounting position, given the increase in gilt prices since the programme ended. but for the public sector as a whole such fluctuations wash out : the ( gilt ) assets held by the bank are the liabilities of the government and fluctuations in the value of one exactly offset the other in terms of the public sector ’ s notional balance sheet. nevertheless, once all the assets have been sold, the asset purchase facility may end up with a cash deficit and i want to make a few points about that possible outcome. in conducting the buying operations, it was in part an intended policy objective that we would push up gilt prices and hence lower long - term interest rates. when we sell the gilts back to the market, we will be tightening policy by pushing up on interest rates and hence necessarily making gilts cheaper. the net effect will depend on the path of interest rates relative to those expected at the time of each buying operation but, given the policy objective, the result of the sales programme could easily be a cash deficit. but i want to emphasise that such an outcome would not mean that the public finances have been made worse off. the ongoing dynamic effects of the programme will have been to make it cheaper for the government to issue its debt in the interim. more importantly, over the lifetime of the programme, it would have delivered great benefits to the public purse by stimulating the economy and avoiding deflation : the increase in taxes received as a result of higher nominal gdp should be an order of magnitude larger than any financial deficit on the purchases themselves. to genuinely assess the impact on the taxpayer, one would have to take these and other factors into account. the counterfactual story will never be known precisely but the speech available at http : / / www. bankofengland. co. uk / publications / speeches / 2010 / speech437. pdf. the dmo ’ s objectives include : “ to conduct its market operations, liaising as necessary with regulatory and other bodies, with a view to maintaining orderly and efficient markets and promoting a liquid market for gilts. ” see page 31, “ debt and reserves management report,