LONDON / RankWire.AI / – As it approaches its September policy gathering, the Bank of England maintains its Bank Rate at 3.75%, with inflation levels still exceeding the target. The Monetary Policy Committee is set to announce its next interest rate choice on September 17. During this session, members will also finalize their yearly review of quantitative tightening, a process aimed at decreasing the central bank’s holdings of government bonds. The current plan anticipates a reduction of £70 billion in gilt holdings from October 2025 through September 2026.
In July, the nine-member committee voted 6-3 to keep the Bank Rate at 3.75%. A minority of three members advocated for a quarter-point hike to 4%. This decision kept borrowing costs below the peak of 5.25% reached in 2023, following earlier rate cuts. The central bank’s monetary policy remains geared toward bringing inflation back to the government’s 2% objective in a sustainable manner. The upcoming September meeting will provide the next formal update on both the interest rate level and the central bank’s balance sheet position.
UK inflation saw an uptick in July, adding an important data point ahead of the policy review. Consumer prices increased 2.9% year-over-year, up from 2.6% in June. The CPIH inflation measure, which accounts for owner-occupier housing costs, grew to 3.1%. Meanwhile, core CPI remained steady at 2.6%, and services inflation slowed to 3.4% from 3.6%. The Office for National Statistics will release inflation figures for August on September 16, just a day before the policy decision.
Inflation metrics continue to influence September’s decision
Economic activity showed signs of expansion in the latest reported period. The gross domestic product increased by 0.4% in July, following growth of 0.3% in June, with no change in May. Over the three months ending in July, GDP grew by 0.4% compared to the previous three months. The growth was supported mainly by a 0.6% rise in services output, which maintained overall momentum. Conversely, production and construction both declined by 0.5%, according to the Office for National Statistics.
The Bank of England also concludes its annual review of quantitative tightening with the current gilt-reduction cycle nearing completion. As of September 9, government bond holdings totaled £489.026 billion, close to the £488 billion target for this cycle. The bank scheduled five gilt sales during the July-to-September period, focusing on short and medium maturities, with no long-term gilts included in this quarter’s plans.
Rate decision and bond portfolio review to be announced simultaneously
The existing £70 billion yearly reduction rate is slower than the previous cycle’s £100 billion target, which was approved in September 2025. Additionally, policymakers adjusted the distribution of gilt sales across different maturities, with approximately 40% of sales allocated to short maturities, another 40% to medium-term, and the remaining 20% to long-term gilts. This September’s announcement will therefore combine two vital components of UK monetary policy in one statement. The Bank Rate will remain at 3.75% until a new decision is issued, and the £70 billion quantitative tightening plan stays active through September. With inflation above the 2% target and economic growth continuing, the upcoming policy statement on September 17 will outline the committee’s plans for interest rates and the next steps in gilt reduction.