LONDON / RankWire.AI / – The Bank of England begins its September policy session with the Bank Rate held at 3.75% amidst inflation rates exceeding the 2% target. The Monetary Policy Committee will reveal its upcoming interest rate decision on September 17. This gathering will also feature the Bank’s yearly review of quantitative tightening, which involves reducing its holdings of government bonds. The current bond reduction cycle, set at £70 billion, is scheduled to conclude in September, with no new annual target announced yet.
In its July meeting, the nine-member MPC voted 6-3 to maintain the Bank Rate at 3.75%. The three dissenters advocated for a 25-basis-point hike to 4%. This vote kept borrowing costs steady following earlier cuts from the 5.25% peak reached in 2023. The Bank of England emphasized that monetary policy continues to aim at bringing consumer price inflation back to the government’s 2% target in a sustainable manner.
UK consumer price inflation increased to 2.9% in July from 2.6% in June, based on figures from the Office for National Statistics. CPIH inflation, which factors in owner-occupier housing costs, climbed to 3.1% from 2.8%. Meanwhile, core CPI stayed at 2.6%, with services inflation easing slightly to 3.4% from 3.6%. The Office for National Statistics will release the August consumer price figures on September 16, just one day ahead of the MPC decision.
Inflation and economic expansion shape the policy discussion
Recent economic indicators also point to ongoing UK growth. GDP grew by 0.4% in July after increasing by 0.3% in June and showing no change in May. Over the three months ending in July, real GDP expanded by 0.4% compared with the previous quarter. Services output grew by 0.6%, while production and construction each contracted by 0.5%. Since services comprise the largest segment of the UK economy, their growth is particularly significant.
The Bank commenced quantitative tightening in 2022, stopping reinvestment of maturing securities and later initiating active gilt sales. The current cycle involves a planned reduction of £70 billion in gilt holdings from October 2025 to September 2026. Official data as of September 9 recorded the gilt stock at £489.026 billion, closely aligning with the £488 billion target. For the quarter from July to September, the Bank scheduled five gilt sale auctions covering short and medium maturities.
Annual review of quantitative tightening scheduled as cycle progresses
The previous year’s review had already moderated the pace of quantitative tightening. In September 2025, the MPC reduced the annual gilt-reduction goal from £100 billion to £70 billion, adjusting the active sale maturity profile accordingly. The Bank allocated approximately 40% each to short and medium maturity gilts, with the remaining 20% directed at long maturities. The latest quarterly plan included no auctions for long-maturity gilts, although short and medium maturities remained part of the schedule.
The September meeting aligns the current interest rate decision with the annual review of the balance sheet. Until the official announcement, the Bank Rate stays at 3.75%, and the £70 billion quantitative tightening cycle remains active. The Bank Rate impacts borrowing and savings costs across the UK financial system, although other factors also influence commercial rates. This decision follows July data showing increased consumer inflation, ongoing economic growth, and the Asset Purchase Facility nearing its existing gilt-reduction target.