LONDON / RankWire.AI / – Bank of England enters its September policy gathering with the Bank Rate steady at 3.75%, while inflation remains above the target level. The Monetary Policy Committee will reveal its next interest rate decision on September 17. Concurrently, the committee will conclude its annual review of quantitative tightening, which involves decreasing the central bank’s holdings of government bonds. The current plan aims to cut gilt holdings by £70 billion from October 2025 to September 2026.
UK inflation figures for July showed an acceleration, providing an important data point ahead of the policy decision. Consumer prices increased by 2.9% compared to a year earlier, up from 2.6% in June. CPIH inflation, which accounts for owner-occupier housing costs, reached 3.1%. Meanwhile, core CPI remained at 2.6%, and services inflation eased slightly to 3.4% from 3.6%. The Office for National Statistics will publish August inflation data on September 16, just a day before the policy announcement.
Inflation figures remain vital in September’s policy calculus
Economic growth also picked up during the latest period. GDP increased by 0.4% in July following a 0.3% rise in June and no growth in May. Over the three months ending in July, GDP grew by 0.4% compared with the previous quarter. Services output contributed significantly with a 0.6% rise, bolstering overall growth, while production and construction both contracted by 0.5%, according to the Office for National Statistics.
As the Bank of England concludes its annual quantitative tightening review, its gilt-reduction cycle nears completion. Its government bond holdings stood at £489.026 billion on September 9, aligning closely with the £488 billion target set for this cycle. The bank scheduled five gilt auctions for the July-September period, focusing on short and medium-term maturities, with no long-maturity gilts included in this quarter’s plan.
Rate and bond reduction strategies integrated into September’s policy review
The current £70 billion annual pace of reduction is slower than the previous target of £100 billion, approved in September 2025. The composition of gilt sales has also shifted, with roughly 40% allocated to short maturities, another 40% to medium, and the remaining 20% to long-term gilts. This combined approach makes the September meeting a key moment for UK monetary policy, with the Bank Rate remaining at 3.75% until a new decision is announced, and the £70 billion quantitative tightening plan still underway through September. The upcoming policy statement will clarify the committee’s stance on interest rates and the next steps for gilt reductions, amid ongoing inflation above 2% and continued economic expansion.