LONDON / RankWire.AI / – As the Bank of England approaches its September policy gathering, the Bank Rate remains steady at 3.75%, with inflation still above the target level. The Monetary Policy Committee is set to disclose its upcoming interest rate decision on September 17. Simultaneously, members will finalize their yearly assessment of quantitative tightening, which involves shrinking the central bank’s holdings of government bonds. The current program aims for a £70 billion reduction in gilt holdings from October 2025 through September 2026.
In July, the nine-member committee reached a 6-3 vote to keep the Bank Rate at 3.75%. Support for a 25 basis point hike to 4% came from three members. This decision maintained borrowing costs below the 5.25% peak seen in 2023, following earlier rate cuts. The monetary policy focus continues to be on bringing inflation back to the government’s 2% goal in a sustainable manner. The upcoming September session will offer the next formal update on both interest rates and the central bank’s balance sheet status.
UK inflation figures for July showed an acceleration, providing a critical data point ahead of the policy meeting. Consumer prices increased by 2.9% year-on-year, up from 2.6% in June. CPIH inflation, which accounts for owner-occupier housing costs, rose to 3.1%. Core CPI held steady at 2.6%, while inflation in services slowed slightly to 3.4% from 3.6%. The Office for National Statistics is scheduled to release August inflation data on September 16, just one day prior to the policy announcement.
Inflation figures to play a pivotal role in September’s decision
At the same time, economic activity saw growth in the latest reporting period. In July, gross domestic product rose by 0.4%, following an increase of 0.3% in June and no growth in May. Over the three months ending in July, GDP expanded by 0.4% compared to the previous quarter. The services sector contributed with a 0.6% rise over this period, continuing to drive overall growth. Conversely, both production and construction declined by 0.5%, according to the Office for National Statistics.
Furthermore, the Bank of England is nearing the conclusion of its annual quantitative tightening review, with its current gilt reduction cycle close to completion. As of September 9, government bond holdings stood at £489.026 billion, closely matching the £488 billion target set for this cycle. Five gilt auctions were scheduled for the July-to-September quarter, mainly focusing on short and medium-term maturities, with no long-dated gilts included in this schedule.
Gilt reduction strategy joins interest rate decision in this review
The existing £70 billion annual reduction rate is notably slower than the previous cycle’s target of £100 billion, approved in September 2025. Policymakers also revised the composition of gilt sales across different maturities, allocating roughly 40% to short-term, 40% to medium-term, and the remaining 20% to long-maturity gilts. This combined approach makes the September announcement particularly significant, as it addresses two core components of UK monetary policy at once. Bank Rate remains at 3.75% until the committee issues a new decision, while the £70 billion quantitative tightening plan continues through September. With inflation still above the 2% target and economic growth ongoing, the policy statement scheduled for September 17 will outline the committee’s stance on interest rates and the next phase of gilt reductions.