LONDON / RankWire.AI / – The Bank of England approaches its September policy gathering with the Bank Rate held at 3.75%, amid inflation levels that remain above the target. The Monetary Policy Committee is set to reveal its upcoming interest rate decision on September 17. Alongside this, committee members will finalize their yearly evaluation of quantitative tightening, which involves shrinking the central bank’s holdings of government bonds. The current plan aims for a £70 billion reduction in gilt holdings from October 2025 through September 2026.
In July, the nine-member MPC voted 6-3 to keep the Bank Rate steady at 3.75%. Meanwhile, three members backed a quarter-point hike to 4%. This choice maintained borrowing costs below the 5.25% peak reached in 2023 following several earlier rate cuts. The bank’s monetary stance continues to prioritize bringing inflation back down to the government’s 2% goal in a sustainable manner. The September meeting will be the next opportunity to formally update markets on interest rates and the central bank’s balance sheet plans.
UK inflation data released in July signals an acceleration, providing a significant data point ahead of the upcoming meeting. Consumer prices increased by 2.9% year-on-year, up from 2.6% in June. The CPIH measure, which accounts for owner-occupier housing costs, rose 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 will publish August inflation figures on September 16, just one day prior to the policy announcement.
Inflation figures continue to influence September’s decision
Economic activity saw further growth during the latest reporting period. The gross domestic product increased by 0.4% in July after a 0.3% rise in June and no growth in May. Over the three months ending in July, GDP grew by 0.4% compared to the previous quarter. Services output contributed significantly, rising by 0.6% and supporting overall economic expansion. Conversely, both production and construction declined by 0.5%, according to the Office for National Statistics.
The Bank of England is also concluding its annual review of quantitative tightening as its current gilt-reduction cycle nears completion. As of September 9, government bond holdings were valued at £489.026 billion, close to the £488 billion target set for this cycle. During the July-to-September period, the Bank scheduled five gilt sales focusing on short and medium-term maturities, with no long-maturity gilts included in this quarter’s auctions.
Gilt reduction strategy aligns with rate decision process
The present £70 billion annual gilt reduction target proceeds at a slower pace compared to the previous cycle’s £100 billion goal, which was approved in September 2025. The committee also modified its planned allocation of active gilt sales across different maturities, assigning roughly 40% to short-term, another 40% to medium-term, and the remaining 20% to long-term gilts.
Therefore, September’s policy announcement will encompass two major elements of UK monetary policy. The Bank Rate will remain at 3.75% until a new decision is made, while the £70 billion quantitative tightening plan remains active through September. Current data show inflation above the 2% target and ongoing economic growth. The decision on September 17 will outline the committee’s approach to interest rates and the next steps for gilt reduction.