The UK’s central bank has already made three 25bps cuts to the bank rate so far this year, one in February, one in May, and the most recent in August.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) has voted to leave its base rate unchanged at 4%, a move widely anticipated by analysts and markets.
In a meeting today (18 September), seven MPC members voted to leave interest rates at 4%, having decided to cut rates by 25bps at the last meeting in August, while the remaining two - Swati Dhingra and Alan Taylor - opted for another 25bps cut.
The UK central bank has already made three 25bps reductions to the bank rate so far this year, one in February, one in May, and the most recent in August.
The MPC also voted to slow its quantitative tightening bond-selling programme from £100bn to £70bn to curb rising bond yields - voting to reduce the stock of gilts held in the central bank's asset purchase facility (APF) by £70bn over the period from October 2025 to September 2026, to a total of £488bn.
The BoE said that, as part of implementing the MPC's decision, it would, for the year starting at the beginning of Q4 this year, aim to sell fewer long maturity sector gilts than gilts at other maturities, "to better reflect demand conditions". The BoE said it expected to hold one long auction in each of the first three quarters, with the remaining target met through selling short and medium maturity sector bonds.
It said this will result in an approximate weighting in which 40% of the MPC's target is met by selling short maturity sector bonds, 40% by medium maturity sector bonds, and 20% by long maturity sector bonds, measured in initial proceeds terms.
Inflation concerns
LCP partner Natalie Brain said: "The Bank of England's decision to hold rates at 4% reflects concerns over UK inflation which remains well above target. UK CPI inflation was 3.8% over the year to August, unchanged from the year to July, even though economic growth remains weak. The MPC's decision contrasts with the US Federal Reserve's move yesterday to cut interest rates for the first time this year."
She added: "As well as holding interest rates at 4.0%, the MPC also announced that it would dial back the pace at which it is reducing the Bank's gilt holdings, moving from sales of £100bn pa to £70bn pa. Going forward, sales will also be weighted more towards short and medium maturities (around 40% each), with only 20% in long maturities. This is intended to ease pressure on the UK gilt market, particularly at the longer end, which has been volatile in recent months amid concerns over the UK's fiscal position."
BlackRockUK chief investment strategist Vivek Paul added: ""The real story for UK debt costs is the global rise in long-term borrowing costs for governments. Yields on 30-year government bonds for France, Japan and the UK hit multi-decade highs in recent weeks. We expect more market attention on long-term UK gilt yields through the government's November budget given the difficulty it has had implementing spending cuts and the likely cut in productivity estimates by the UK's Office of Budget Responsibility.
"That's the context behind the Bank's decision today to pare back its quantitative tightening – slowing its sales of UK gilts – and the Debt Management Office's indication to skew new debt issuance away from long-dated bonds. Though it changes none of the fundamentals faced by developed economies globally, policymakers hope these actions will help limit the UK-specific pressure on long-dated yields just as international buyers of long-term bonds are becoming more risk-conscious than ever. With yields at these elevated levels, gilts could look attractive for some long-term investors – but those who lock in these yields should expect volatility to persist until the budget sets the next chapter."
A version of this article first appeared on Professional Pensions' sister title Investment Week
