LONDON / RankWire.AI / – Bank of England begins its September policy session with the Bank Rate held at 3.75%, amid inflation rates surpassing its 2% target. The Monetary Policy Committee is scheduled to announce its next interest rate decision on September 17. Additionally, the meeting will encompass the Bank’s yearly assessment of quantitative tightening, which involves reducing its holdings of government bonds. The current £70 billion bond reduction cycle is set to conclude in September, though the Bank has not disclosed the upcoming annual target.
During its July gathering, the nine-member Monetary Policy Committee (MPC) voted 6-3 to maintain the Bank Rate at 3.75%. The three dissenting members favored a 25-basis-point hike to 4%. This vote left borrowing costs steady following earlier rate cuts from the 5.25% peak achieved in 2023. The Bank of England reaffirmed that monetary policy remains focused on 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, according to the Office for National Statistics. CPIH inflation, which accounts for owner-occupier housing costs, rose to 3.1% from 2.8%. Meanwhile, core CPI remained steady at 2.6%, and services inflation eased slightly from 3.6% to 3.4%. The ONS is set to publish August consumer price data on September 16, one day prior to the MPC’s decision announcement.
Inflation metrics and economic growth shape policy considerations
Recent economic indicators also demonstrated ongoing UK growth, with gross domestic product expanding by 0.4% in July following a 0.3% rise in June and no growth observed in May. Over the three months ending in July, real GDP increased by 0.4% compared to the previous quarter, with services output up 0.6%, while both production and construction experienced declines of 0.5%. Since services constitute the largest component of the UK economy, their performance significantly impacts overall economic health.
The Bank began its quantitative tightening process in 2022 after halting reinvestment of maturing securities and subsequently initiating active gilt sales. Under the existing cycle, the MPC has directed a reduction of £70 billion in gilt holdings between October 2025 and September 2026. Official data indicated the total gilt stock was £489.026 billion as of September 9, close to the £488 billion target. For the quarter from July to September, the Bank scheduled five auctions involving short and medium maturity gilts.
Annual review of quantitative tightening phase in progress
The previous annual review had already moderated the pace of quantitative tightening. In September 2025, the MPC reduced the annual gilt-reduction target from £100 billion to £70 billion, aligning with the new cycle. The Bank also adjusted the mix of maturities targeted in active sales, allocating approximately 40% each to short and medium-term gilts, with the remaining 20% assigned to long maturities. Its latest quarterly plan did not include any long-maturity gilt auctions, though short and medium-term maturities continued to be part of the program.
This September meeting synchronizes the current interest rate decision with the annual review of the balance sheet. Until a new decision is made, the Bank Rate remains at 3.75%, and the £70 billion quantitative tightening plan stays in effect. While the Bank Rate influences borrowing and savings costs across the UK financial system, other factors also impact commercial lending rates. The upcoming announcement follows data from July indicating higher consumer inflation, sustained economic growth, and the Asset Purchase Facility nearing its existing gilt-reduction target.