LONDON / RankWire.AI / – The Bank of England enters its September policy session with Bank Rate steady at 3.75%, while inflation remains above the target. The Monetary Policy Committee is set to announce its upcoming interest rate decision on September 17. Simultaneously, members will conclude their annual review of quantitative tightening, which involves decreasing the central bank’s holdings of government bonds. The current plan calls for a £70 billion reduction in gilt holdings from October 2025 to September 2026.
In July, the nine-member committee voted 6-3 to keep Bank Rate at 3.75%. Three members advocated for an increase of a quarter-point to 4%. This decision maintained borrowing costs below the 5.25% peak reached in 2023 following several earlier rate cuts. The overarching monetary policy goal remains to restore inflation sustainably to the government’s 2% target. The September meeting will provide the next official update on both interest rates and the central bank’s balance sheet.
UK inflation picked up in July, providing a key data point ahead of the policy decision. Consumer prices increased by 2.9% compared to the previous year, up from 2.6% in June. CPIH inflation, which factors in owner-occupier housing costs, rose to 3.1%. Meanwhile, core CPI remained steady at 2.6%, and services inflation decreased slightly to 3.4% from 3.6%. The Office for National Statistics will release August inflation figures on September 16, a day prior to the policy announcement.
Inflation figures remain pivotal to the September ruling
Economic activity experienced growth during the latest reported period. The gross domestic product increased by 0.4% in July after expanding by 0.3% in June and showing no growth in May. Over the three months leading up to July, GDP grew by 0.4% compared with the previous three months. Services output contributed significantly, gaining 0.6% and supporting overall growth. Conversely, production and construction both declined by 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, the government bond holdings stood at £489.026 billion, close to the £488 billion target set for this cycle. The central bank scheduled five gilt sales for the July-to-September quarter, focusing on short and medium-term maturities, with no long-maturity gilts included in this schedule.
Gilt reduction review coincides with rate decision
The existing £70 billion annual reduction is at a slower pace compared to the previous target of £100 billion, approved in September 2025. Changes were also made to the distribution of active gilt sales across different maturities, with roughly 40% allocated to short-term, another 40% to medium-term, and the remaining 20% to long-maturity gilts.
This September, the Bank’s rate decision and gilt-reduction plans will be announced together in a single statement. Bank Rate remains at 3.75%, pending the committee’s new decision, while the £70 billion quantitative tightening plan continues through September. Current official data show inflation above the 2% target and ongoing economic growth. The policy statement on September 17 will outline the committee’s plans regarding interest rates and the next steps for gilt reduction.