LONDON / RankWire.AI / – Bank of England approaches its September policy session with Bank Rate held at 3.75% and inflation remaining above the target level. The Monetary Policy Committee is scheduled to reveal its upcoming interest rate decision on September 17. Additionally, members will finalize their yearly review of quantitative tightening, which involves decreasing the central bank’s holdings of government bonds. The current plan targets a £70 billion reduction in gilt holdings between October 2025 and September 2026.
In July, the nine-member committee voted 6-3 to keep Bank Rate steady at 3.75%. Three members favored a quarter-point hike to 4%. This decision maintained borrowing costs below the 5.25% peak reached in 2023 after earlier rate cuts. The central bank’s monetary policy continues to focus on achieving a sustainable return of inflation to the government’s 2% target. The September meeting will offer the next official update regarding both interest rates and the central bank’s balance sheet.
UK inflation accelerated in July, providing a significant 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 at 2.6%, whereas services inflation slowed to 3.4% from 3.6%. The Office for National Statistics will release August inflation figures on September 16, just one day prior to the policy announcement.
Inflation figures play a pivotal role in September’s decision-making process
Economic activity grew during the most recent period reported. Gross domestic product (GDP) increased by 0.4% in July after a 0.3% rise in June, with no growth recorded in May. Over the three months leading up to July, GDP expanded by 0.4% compared to the previous three months. Services output grew by 0.6% within that timeframe, continuing to support overall economic growth. Meanwhile, production and construction both contracted by 0.5%, according to the Office for National Statistics.
The Bank of England is also concluding its annual review of quantitative tightening, as its current gilt-reduction cycle nears completion. As of September 9, holdings of government bonds stood at £489.026 billion, nearing the target of £488 billion for this cycle. The central bank scheduled five gilt sales for the July-to-September quarter, with auctions focusing on short- and medium-term maturities, excluding long-dated gilts from the quarterly plan.
The bond portfolio review coincides with rate policy decisions
The current annual reduction of £70 billion proceeds at a slower pace than the previous target of £100 billion, approved in September 2025. The planned mix of active gilt sales across different maturities was also adjusted, with approximately 40% of sales allocated to short maturities, another 40% to medium maturities, and the remaining 20% to long-maturity gilts.
Consequently, the September meeting combines two key components of UK monetary policy within a single scheduled announcement. The Bank Rate remains at 3.75% until the committee issues a new decision, while the £70 billion quantitative tightening plan continues through September. Current official data indicate inflation above the 2% target and ongoing economic growth. The policy announcement on September 17 will outline the committee’s stance on interest rates and the next steps for the gilt reduction program.