LONDON / RankWire.AI / – Bank of England approaches its September policy meeting with Bank Rate maintained at 3.75%, despite inflation remaining above the target level. The Monetary Policy Committee is scheduled to reveal its interest rate decision on September 17, and will also finalize its yearly review of quantitative tightening, a process aimed at shrinking the central bank’s holdings of government bonds. The current plan envisions a £70 billion decrease 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 argued for a quarter-point hike to 4%. This decision preserved borrowing costs below the 5.25% peak seen in 2023 after earlier rate cuts. The overarching monetary policy goal remains to bring inflation back to the 2% target sustainably. The upcoming September meeting will serve as the next formal update on both interest rates and the central bank’s balance sheet.
UK inflation accelerated in July, providing a key data point ahead of the policy decision. Consumer prices increased by 2.9% year-over-year, up from 2.6% in June. CPIH inflation, which includes owner-occupier housing costs, rose to 3.1%. Meanwhile, core CPI remained steady at 2.6%, while services inflation eased slightly from 3.6% to 3.4%. The Office for National Statistics is scheduled to release August inflation figures on September 16, just one day before the announcement.
Inflation figures to influence September policy stance
Economic activity showed signs of growth in the latest reporting period. GDP 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 with the previous three months. Services output contributed to this expansion with a 0.6% increase, supporting overall growth. Conversely, production and construction experienced declines of 0.5%, according to the Office for National Statistics.
The Bank of England is also concluding its annual review of quantitative tightening, with its current gilt reduction cycle nearing completion. As of September 9, government bond holdings amounted to £489.026 billion, very close to the £488 billion target set for this cycle. During the July-to-September quarter, five gilt auctions were scheduled, focusing primarily on short and medium maturities, with no long-maturity gilts included in this quarter’s sales plan.
Gilt reduction strategy integrated with rate decision
The £70 billion annual reduction rate is slower than the previous cycle’s target of £100 billion, approved in September 2025. The composition of active gilt sales across maturities was also adjusted, with roughly 40% allocated to short-term, 40% to medium-term, and the remaining 20% to long-maturity gilts. This restructuring reflects a strategic shift in the approach to bond sales.
Therefore, the September announcement will address two crucial components of UK monetary policy in one statement. The Bank Rate will stay at 3.75% until a new decision is announced, and the £70 billion gilt reduction plan remains in effect through September. With inflation still above the 2% goal and economic activity ongoing, the policy statement on September 17 will outline the committee’s outlook on interest rates and the next steps for gilt sales.