LONDON / RankWire.AI / – Bank of England approaches its September policy meeting with the Bank Rate set at 3.75%, while inflation remains above the target level. The Monetary Policy Committee is scheduled to announce its upcoming interest rate decision on September 17. Alongside this, members will finalize their yearly review of quantitative tightening, a process that decreases the central bank’s holdings of government bonds. The current plan aims for a £70 billion reduction in gilt holdings between October 2025 and September 2026.
In July, the nine-member committee voted 6-3 to keep the Bank Rate steady at 3.75%. Three members favored raising the rate by a quarter-point to 4%. This decision maintained borrowing costs below the 5.25% peak reached in 2023 after several earlier rate cuts. The focus of monetary policy continues to be on restoring inflation to the government’s 2% target sustainably. The September meeting will be the next opportunity to formally update the market on both interest rates and the central bank’s balance sheet.
UK inflation showed an acceleration in July, providing a key data point ahead of the upcoming decision. Consumer prices increased by 2.9% compared to the previous year, up from 2.6% in June. CPIH inflation, which accounts for owner-occupier housing costs, rose to 3.1%. Core CPI remained steady at 2.6%, while inflation in services slowed slightly to 3.4% from 3.6%. The Office for National Statistics will release August inflation data on September 16, just one day before the policy announcement.
Inflation figures stay crucial for September decision-making
Economic activity also expanded during the latest reporting period. Gross domestic product increased by 0.4% in July after a 0.3% rise in June, with no growth observed in May. Over the three months ending in July, GDP grew by 0.4% compared to the previous three months. Services output contributed with a 0.6% gain over that period, continuing to drive overall growth. Meanwhile, production and construction both declined by 0.5%, according to the Office for National Statistics.
Furthermore, the Bank of England reaches the final stages of its annual quantitative tightening review as its current gilt-reduction cycle nears completion. As of September 9, its government bond holdings stood at £489.026 billion, close to the £488 billion target 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 integrates with rate decision
The existing £70 billion annual reduction rate is slower than the previous cycle’s target of £100 billion, which policymakers approved in September 2025. They also adjusted the planned distribution of active gilt sales across maturities, allocating roughly 40% to short-term, 40% to medium-term, and 20% to long-term gilts. This shift reflects a strategic change in their approach to bond sales.
Therefore, the September policy announcement will combine two key elements of UK monetary policy. The Bank Rate will remain at 3.75% until the committee issues a new decision, and the £70 billion quantitative tightening plan remains in effect through September. Current data indicate inflation above the 2% goal alongside ongoing economic growth. On September 17, the committee will outline its decisions regarding interest rates and the next phase of the gilt reduction program.