LONDON / RankWire.AI / – As it begins its September policy session, the Bank of England maintains its Bank Rate at 3.75%, despite inflation remaining above its 2% target. The upcoming meeting, scheduled for September 17, will see the Monetary Policy Committee (MPC) also conducting its annual review of quantitative tightening, which involves reducing its holdings of government bonds. This cycle, currently involving a £70 billion bond reduction, is set to run through September, with the Bank yet to specify next year’s target.
In its July meeting, the nine-member MPC voted 6-3 to keep the Bank Rate steady at 3.75%, with the three dissenters advocating for a 25-basis-point increase to 4%. This decision left borrowing costs unchanged after previous rate cuts that brought the rate down from the 5.25% peak reached in 2023. The Bank of England emphasized that its monetary policy remains focused on guiding consumer price inflation back to the government’s 2% goal in a sustainable manner.
According to the Office for National Statistics, UK consumer price inflation rose to 2.9% in July from 2.6% in June, while CPIH inflation, which accounts for owner-occupier housing costs, increased to 3.1% from 2.8%. Meanwhile, core CPI held steady at 2.6%, with services inflation easing slightly to 3.4% from 3.6%. The ONS plans to release August consumer price data on September 16, just one day prior to the MPC’s decision.
Inflation and economic growth influence the policy decision
Recent economic reports also highlighted ongoing growth within the UK economy, with GDP expanding by 0.4% in July after a 0.3% rise in June and no growth observed in May. Over the three months ending in July, real GDP grew 0.4% compared to the previous quarter, with services output increasing by 0.6%, while production and construction each declined by 0.5%. Services, which comprise the largest portion of the UK economy, continue to drive economic activity.
The Bank of England initiated quantitative tightening in 2022, starting with the cessation of reinvestment of maturing securities and subsequently moving to active gilt sales. Under the current scheme, the MPC has ordered a reduction of £70 billion in gilt holdings between October 2025 and September 2026. Official figures as of September 9 indicate the stock at £489.026 billion, closely matching the £488 billion target. During the July-to-September quarter, five auctions of short- and medium-maturity gilts were scheduled as part of this plan.
Annual review of quantitative tightening reaches a milestone
The previous year’s review had already resulted in a slowdown of quantitative tightening, with the MPC reducing the annual gilt-reduction target from £100 billion to £70 billion in September 2025, compared to the prior cycle. The committee also revised the maturity distribution for active sales, allocating roughly 40% to short-term gilts, 40% to medium-term, and 20% to long-term securities. The latest quarterly schedule involved no long-maturity gilt auctions, maintaining focus on short and medium maturities within the program.
This September session aligns the current interest rate decision with the annual review of the balance sheet, meaning that until the MPC announces a change, the Bank Rate remains at 3.75%, and the £70 billion quantitative tightening cycle remains the official plan. While Bank Rate influences borrowing and savings costs across the UK financial system, other market factors also affect commercial interest rates. The upcoming announcement follows recent data showing higher consumer inflation, ongoing economic growth, and the Asset Purchase Facility nearing its established gilt-reduction goal.