LONDON / RankWire.AI / – Leading into its September policy gathering, Bank of England maintains its Bank Rate at 3.75%, with inflation still above the official target. The Monetary Policy Committee is set to declare its next decision on interest rates on September 17. During this period, officials will also conclude their yearly assessment of quantitative tightening, which involves shrinking the central bank’s holdings of government bonds. The current scheme aims for a £70 billion reduction in gilt holdings from October 2025 to September 2026.
In July, the nine-member committee reached a 6-3 vote to keep the Bank Rate steady at 3.75%. Meanwhile, three members backed a quarter-point hike to 4%. This decision ensured borrowing costs stayed below the 5.25% peak seen in 2023 after earlier rate cuts. The central bank remains committed to steering inflation back to the government’s 2% goal sustainably. The upcoming September meeting will be the next formal opportunity to update markets on both interest rate policy and the central bank’s balance sheet strategy.
UK inflation picked up pace in July, providing a crucial data point ahead of the policy decision. Consumer prices increased by 2.9% year-over-year, rising from 2.6% in June. CPIH inflation, which accounts for owner-occupier housing costs, climbed to 3.1%. Core CPI remained unchanged at 2.6%, while services inflation eased slightly to 3.4% from 3.6%. The Office for National Statistics is scheduled to publish August inflation figures on September 16, just one day before the policy announcement.
Inflation figures to influence September’s policy choice
Economic activity demonstrated growth in the latest reporting period. The gross domestic product increased by 0.4% in July, following a 0.3% rise in June and no change in May. Over the three months ending in July, GDP grew by 0.4% compared to the previous quarter. Service sector output grew 0.6%, continuing to drive overall economic growth. Conversely, both production and construction sectors declined by 0.5%, according to the Office for National Statistics.
As part of its annual review, the Bank of England is nearing the conclusion of its current gilt-reduction cycle. Its holdings stood at £489.026 billion as of September 9, aligning closely with the target of £488 billion for this cycle. During July to September, the bank scheduled five gilt sales, mainly targeting short and medium-term maturities, with no long-maturity gilts included in this quarter’s schedule.
Rate decisions and bond portfolio review integrated into upcoming announcement
The £70 billion annual reduction pace is slower than the previous cycle’s target of £100 billion, which was approved in September 2025. Additionally, policymakers altered the distribution of active gilt sales, allocating approximately 40% to short maturities, another 40% to medium-term gilts, and the remaining 20% to long-maturity bonds. The September gathering will therefore combine two key policy elements in one official statement. While the Bank Rate remains at 3.75%, the £70 billion quantitative tightening plan will stay in effect through September. Given the latest inflation data above the 2% target and ongoing economic growth, the upcoming announcement on September 17 will detail the committee’s stance on interest rates and the future of gilt reductions.