Closing post
Time to wrap up…
The Bank of England has left interest rates on hold at 4% and will slow the pace of its “quantitative tightening” programme in the year ahead to avoid distorting jittery government bond markets.
The central bank’s nine-member monetary policy committee voted 7-2 to leave borrowing costs unchanged, after five cuts since summer 2024, including a reduction last month.
Two members of the committee, Swati Dhingra and professor Alan Taylor, voted for another quarter-point rate cut this month.
The committee also decided to slow the pace of reductions to its balance sheet through quantitative tightening (QT), which involves selling off the government bonds the Bank accumulated through the emergency policy of quantitative easing after the 2008 financial crisis.
QT will be slowed to £70bn over the next year, down from a £100bn reduction in bond holdings over the last 12 months.
But the Bank will still actually conduct more active bond sales than over the last year, as fewer of its bonds will mature over the next 12 months.
The Bank governor, Andrew Bailey, said:
“Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”
Bailey also told broadcasters that he expects the Bank to cut rates further in the coming months, saying:
“I continue to think that there will be some further reductions, but I think the timing and scale of those is more uncertain now.
We are also seeing softening in the labor market going on, and there is a risk that could, of course, get larger. It’s a risk rather than a central expectation.”
City economists are split over when the next rate cut could come – some suggest as soon as November, but others think it could take until February 2026, or longer…
Here’s our analysis of the Bank’s decision:
Daniel Vernazza, chief international economist at UniCredit, reckons the City is underestimating how rapidly the Bank of England will cut interest rates.
We still expect the MPC cut the bank rate by 25bp on 6 November, to 3.75%, as the labour market is likely to continue to deteriorate.
But we no longer expect a sequential cut in December and the risk is that the MPC delays cutting again to next year. Some MPC members want to wait to see the extent of second round effects from higher actual inflation, which will take some time to assess.
The Chancellor’s Autumn Budget on 26 November, when she is likely to tighten fiscal policy to keep to her fiscal rules, could also be a reason to wait. While the timing of the next rate cut is now more uncertain, we still expect more and faster rate cuts than financial markets, to 2.75% by the end of next year (vs. market expectations of 3.6%).
David Muir, associate director and senior eonomist at Moody’s Analytics, suspects the next UK interest rate cut might not come until next February, due to inflation pressures:
“As widely expected, the Bank of England kept the policy rate unchanged at 4% this month. And the chances of another rate cut by the end of the year are diminishing.
Persistent price pressures mean the Monetary Policy Committee remains concerned about the outlook for inflation; meanwhile, the prospect of a rapid downturn in the labour market has eased somewhat. It’s become more likely that the BoE will wait until February before cutting rates again, when there will be more compelling evidence that wage pressures are moderating and risks around the inflation outlook are becoming more balanced.”
Bailey: Bank of England rate cuts are not yet over
Bank of England governor Andrew Bailey said the UK central bank is not done with its interest-rate cutting cycle yet, pointing to possible risks in the cooling jobs market, Bloomberg reports.
Speaking to broadcasters following today’s vote to leave rates at 4%, Bailey has said there are still “risks on both sides,” highlighting rising inflation and an easing labor market.
“I continue to think that there will be some further reductions, but I think the timing and scale of those is more uncertain now” than before August, he said.
“We are also seeing softening in the labor market going on, and there is a risk that could, of course, get larger. It’s a risk rather than a central expectation.”
Bank of England Governor Andrew Bailey said the UK central bank is not done with its interest-rate cutting cycle yet, pointing to possible risks in the cooling jobs market https://t.co/ewH4kFp7Fn
— Bloomberg (@business) September 18, 2025
Huw Pill was correct to suggest quantitative tightening of £100bn over the next 12 months. rather than joining his colleagues in voting for less QT, argues Professor Costas Milas, of the Management School at the University of Liverpool.
He tells us:
In taking its decision to slow down QT to £70bn, the MPC was worried that more QT would harm UK GDP growth which is already weak. In fact, my own research (co-authored with Dr Papapanagiotou, University of Groningen), finds that QE/QT actions forecast well future UK growth.
Nevertheless, yesterday’s decision by the Fed to cut the Fed Funds rate by 0.25 percentage points will provide an extra spillover boost to UK growth. The latter makes me think that Huw Pill was largely spot on to suggest keeping the QT pace at £100bn because the Fed’s decision would definitely counteract a QT action of that (i.e. £100bn) size!
Intel shares surge after Nvidia takes stake
Away from the Bank of England, shares in Intel are surging after Nvidia, the world’s leading chipmaker, announced plans to invest $5bn in its smaller rival.
Intel’s shares have jumped by 24% after Nvidia announced it would team up with the firm to work on custom data centers that form the backbone of artificial intelligence (AI) infrastructure, as well as personal computer products.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, says the deal is “a strategic alliance with geopolitical undertones”, explaining:
“Nvidia’s $5 billion investment in Intel is less about money and more about influence. The deal deepens cooperation between two US chip giants, with Intel set to use Nvidia’s GPU technology and Nvidia gaining a stronger foothold in domestic chip production.
For Intel, this is another welcome boost, both financially and strategically, as it leans on Nvidia to stay competitive. But even with the US government and Nvidia on side, it’s one step short of a home run for the foundry business, which is struggling to attract the major customers it needs to succeed against the might of TSMC.
Updated
Bailey: We're not out of the woods yet on inflation
The Bank governor, Andrew Bailey, has warned that the UK is ‘not out of the woods’ in the cost of living squeeze.
Announcing today’s decision to leave interest rates on hold, Bailey said:
“Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”
Food prices have been a key factor pushing up inflation, and there are forecasts that food inflation will rise towards 5.5% by the end of the year.
Michael Saunders, senior economic advisor at Oxford Economics and a former MPC rate setter, says the decision to slow QT and scale back the Bank’s sales of long-dated gilts is “sensible”.
Saunders says it reduces risks that QT could have adverse side effects by adding significant upward pressure on yields.
He also says that the MPC is in “no rush” to cut interest rates, even though the direction of travel for interest rates remains downwards, adding:
The MPC is clearly worried about risks of inflation persistence, especially that the current elevated level of inflation expectations will keep pay growth relatively high.
Before cutting again, the MPC will need to see stronger evidence that pay growth is slowing to a target-consistent pace and that slower pay growth will feed through to lower services inflation. This points to early 2026 for the next rate cut, rather than before the end of this year.
ING: future rate cuts 'hang in the balance'
James Smith, developed markets economist, UK, at ING, predicts “two to three further cuts” to UK interest rates are to come.
He still “narrowly” favour a November cut, if next month’s inflation numbers show an improvement in the cost of living squeeze.
Smith tells clients:
The Bank of England is still biased towards cutting rates further and we expect two to three further 25bp moves by next summer. But whether we get another cut this year is uncertain. We still narrowly favour a November cut, assuming there’s better news in the next set of inflation numbers.
However, the Bank might wait until it has seen Rachel Reeves’s budget, scheduled for late December.
Smith says:
We do expect the next inflation report, which comes ahead of November’s meeting, to undershoot the BoE’s forecasts slightly on services. Then again, the Budget falls a few weeks after the 6 November decision, which means the Bank may not fully bake it into its decision-making until it updates its forecasts again in February.
We’re still narrowly favouring one more cut this year, though that’s a low conviction view. November looks fairly 50:50 to us right now and the data will decide one way or the other.
When might the Bank of England cut interest rates next?
UK borrowers and savers will be keen to know when the Bank of England is next likely to cut interest rates. City forecasts differ.
Paul Dales, chief UK economist at Capital Economics, argues that “the appetite for rapid rate cuts has waned”. He points out that today’s 7-2 voting pattern shows less of a split than in June, when three policymakers wanted to cut rates.
Dales tells clients:
While leaving interest rates at 4.00% today (as expected) and signalling that rates will still fall from here, the Bank of England reiterated its concerns over rising inflation. As a result, we continue to think the Bank won’t cut rates again until February.
Neil Mehta, portfolio manager at RBC BlueBay Asset Management, thinks a pre-Christmas interest rate cut is possible:
We think labour market dynamics remain Governor Bailey’s focus where we are starting to see signs of weakness, particularly in the private sector. For now, public sector wage growth distorts broader figures as unions continue to wield power over the government. We think inflation peaks next month near 4.0% before possibly stabilising for the remainder of the year. However, fiscal measures, particularly on food prices and public wages, pose significant upside risks, on the flip side, improved fourth-quarter data and aggressive rate cuts by the Federal Reserve could spur BoE action in December.
But…Nicolas Sopel, head of macro research and chief strategist at Quintet Private Bank, predicts rate cuts won’t come until 2026:
No surprises from the Bank of England today. As expected, the Bank Rate stays at 4% following a 7-2 vote. But the real shift is in quantitative tightening (QT): the BoE is scaling back its bond sales, the so-called quantitative tightening, from £100bn to £70bn a year. That’s a win for markets— less gilt supply and a smaller hit to the Treasury’s budget covering the loss of the BoE, which’s been selling bonds with yields rising.
Looking ahead, sticky inflation means rates are likely to remain at 4% through 2025. But with the labour market softening — falling vacancies and easing wage growth — we expect inflation to cool in 2026, opening the door to rate cuts.
NEF: Slowing QT is a double-edged sword for the chancellor
It’s becoming popular in media circles to dub all policy decisions, or economic data, as either a “boost” or a “blow” to Rachel Reeves.
But… today’s decision on QT requires more nuance. Although it takes some selling pressure out of the bond market, it could also add to the losses made on those quantitative easing bond purchases [because they were bought at higher prices than they can be sold for today].
Dominic Caddick, economist at the New Economics Foundation, explains:
“Slowing quantitative tightening is a double-edged sword: it will ease pressure in bond markets but at the same time it will tighten the constraints the chancellor has imposed on herself through her fiscal rules. The Bank will be holding bonds on its balance sheet for longer. This prolongs the interest paid out on the central bank money created to buy bonds, which is currently outstripping the interest the Bank receives from those bonds.
“The Bank is effectively paying a massive subsidy to the banking sector, covered by money from the Treasury. But the Bank could reduce this by following the example of Switzerland and the Eurozone, by choosing to pay zero interest on some reserves. Or the chancellor could choose to simply tax commercial banks to reclaim some of their windfall.
“But these changes to quantitative tightening would not cause such a headache for the chancellor if she scrapped the Osborne-era policy of covering Bank of England losses with Treasury money. The European Central Bank and Federal Reserve are responsible for absorbing their own losses - the Bank of England should start doing the same.
Updated
There’s not much reaction in the bond market to the Bank of England’s decision to slow the pace of its quantitative tightening programme.
The yields, or interest rate, on UK 10 and 30-year bonds are little changed today, meaning there’s been no meaningful change to prices.
Kathleen Brooks, research director at brokerage XTB, says:
Quantitative tightening was loosened to £70bn this year, down from £100bn previously, the Bank will also slow the pace of long dated Gilt sales relative to other maturities.
The market impact has been mild. If some had been looking for a drop in 30-year UK Gilt yields, they will have been disappointed, The good news about looser QT had already been priced in, and the 30-year Gilt yield is up slightly on this news, although yields are down slightly at the shorter end of the curve. The pound has backed away from the highs of the day so far on this news, although it remains mid-pack compared to the rest of the G10.
Looking ahead, the Bank of England says that “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.”
That’s a sign that it expects to continue cutting interest rates in the months ahead, if inflation falls back towards target as it expects.
The Bank also repeats an earlier statement that “the restrictiveness of monetary policy has fallen as Bank Rate has been reduced.” Although that’s a statement of the obvious, it’s could also be a signal that the Bank recognises that its recent cuts to interest rates are having an effect.
About that QT reduction....
Confusingly, the Bank of England is actually planning to actively sell more UK government bonds over the next year than in the last 12 months, despite agreeing a smaller reduction to its QT programme.
That’s because there are two ways that the Bank can cut its holdings of government bonds – it can sell ‘em, or it can wait until they mature.
The £100bn reduction in its stock of government bonds (bought to stimulate the economy) in the last year mainly came from maturing bonds, with just £13bn from active gilt sales.
The new plan agreed today means the Bank will sell actively sell £21bn of gilt sales, with £49bn of bonds also due to expire over the next year, taking the total reduction to £70bn
Interestsingly, the Bank has also decided to change the “maturity composition of sales”, selling fewer long maturity sector gilts than gilts at other maturities.
That could take pressure off longer-dated government borrowing costs, which hit 27-year highs earlier this month.
Bank also split 7-2 over bond sale plan (updated)
The Bank was also split over its decision to cut the amount of government bonds it holds.
Seven MPC members, Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Dave Ramsden and Alan Taylor, voted in favour of cutting its UK government bond holdings by £70bn over the next year.
Catherine Mann wanted to cut the stock of UK government bond purchases by £62bn [updated].
But chief economist Huw Pill wanted to cut bond holdings by £100bn, meaning the same pace of reduction as over the last 12 months.
Updated
Bank split 7-2 over interest rate decision
The Bank of England was split over today’s decision on interest rates, choosing not to cut borrowing costs by 7 votes to 2.
Governor Andrew Bailey, deputy governors Sarah Breeden, Clare Lombardelli and Dave Ramsden, chief economist Huw Pill and external members Megan Greene and Catherine Mann all voted to leave rates on hold at 4%.
But the other two external members, Swati Dhingra and Alan Taylor, voted to reduce Bank Rate by 0.25 percentage points, to 3.75%.
Last month, Taylor had initially pushed for a half-point cut, to 3.75%, before voting for a quarter-point cut at an unprecedented second vote after the MPC was split 4-4-1, while Dhingra has been the most dovish member of the committee in the last few years.
BoE slows pace of QT programme
The Bank of England has slowed the pace of its quantitative tightening programme, which cuts its stocks of government bonds,as well as leaving UK interest rates on hold today.
The BoE’s monetary policy committee has decided to dial back the speed of its “quantitative tightening” (QT) programme, to £70bn over the next year. That’s down from £100bn over the last 12 months.
The move follows concerns that the Bank’s sales of government bonds are adding to volatility in the debt market, pushing up borrowing costs, and creating losses for the BoE.
City economists had expected the QT programme to be cut to around £70bn, so today’s decision is in line with forecasts.
Since 2022, the BoE has reduced its gilt holdings from £875bn to £558bn, by selling some of the bonds it bought during its “quantitative easing” stimulus programmes in the financial crisis and the Covid-19 pandemic.
Slowing QT could be a helping hand for Rachel Reeves, because the Bank’s gilt sales have added to pressure on bond prices, pushing up bond yields and adding to the cost of servicing the national debt.
On the other hand, some economists have predicted that scaling back the pace of QT would increase the costs to British taxpayers, as the BOE is losing money on the holdings.
Updated
UK interest rates unchanged at 4%
Newsflash: The Bank of England has voted to leave UK interest rates on hold, as expected.
Following its latest meeting, the Bank’s monetary policy committee decided to leave borrowing costs unchanged.
The MPC held rates a day after UK inflation was recorded at 3.8%, almost double the Bank’s 2% target, despite signs that the jobs market is cooling.
Stand By Your Desks! Bank of England is up next.
— Shaun Richards (@notayesmansecon) September 18, 2025
I am expecting a change in the rate of QT or bond sales this time around.....It was £100 billion per annum.
Just 30 minutes until the Bank of England releases its decision on interest rates, and on how quickly it will unwind its crisis-era quantitative easing portfolio over the next year.
Victoria Scholar, head of investment at Interactive investor, sets the scene:
“The Bank of England is expected to keep rates unchanged at 4% during its policy decision meeting today, particularly in light of yesterday’s inflation data which matched analysts’ expectations. Nonetheless inflation is running much hotter than the central bank would like and is expected to push higher in September before pulling back. Elevated inflation makes it harder for the central bank to continue on its monetary loosening path, raising the likelihood of a higher-for-longer interest rate environment which could have negative effects on borrowing and the housing market.
At its previous decision meeting, the Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4%, in a very narrow vote that divided the BoE’s rate setters. This time, the monetary policy committee is expected to be much more united in its decision with a wider vote split in favour of a hold.
December could be the next live rate decision, once monetary policymakers have greater clarity on the fiscal outlook in terms of the government’s tax and spending plans which will be revealed in late November’s Autumn Budget.
Since today’s hold is widely anticipated, greater focus lunchtime’s announcement will be on the Bank of England’s quantitative tightening. In light of recent bond market volatility, the central bank is expected to slow the pace at which it sells its government bond holdings.”
German industry chiefs have called on the European Commission chief Ursula von der Leyen to slash red tape and dump two laws for every new law added to European statute books.
They said the “one in two out rule”, which has echoes of a one-in and one-out policy pursued by Tony Blair when prime minister of the UK, is an essential part of any effort to accelerate competition conditions that will make it easier to take on rivals such as the Chinese.
They have also called for “simplification” of environmental laws and demanded urgent action from the German government to cut energy costs, the highest in Europe, just pipping Denmark and Ireland.
Germany’s four top business organisations said:
“EU legislation must become better and faster – with mandatory impact assessments and competitiveness checks for all economically relevant laws, stringent application of the “one in, two out” principle, and the consistent elimination of regulatory duplication and disproportionate burdens.”
They are the BDA, the Confederation of German Employers’ Associations, BDI, the Federation of German Industries, DIHK, the German Chamber of Industry and Commerce and ZDH, the German Confederation of Skilled Crafts.
They said the German government had heeded some of their calls to cut red tape but it was not enough.
Berlin needed to “reduce existing overregulation through further omnibus packages and carry out regular reviews of laws in the long term”, the said.
The groups added:
“Complex regulations and excessive reporting requirements must not paralyse the innovative and investment power of our companies. Ambitious simplifications in environmental law are also necessary to speed up planning and approval procedures.”
The joint statement was released in response to a speech by Von der Leyen at a conference in Berlin on Thursday.
Deliveroo has announced that its founder, Will Shu, will step down as CEO once its £2.9bn takeover by rival DoorDash is completed.
Shu says:
“I have decided that now is the right time for me to step down. Taking Deliveroo from being an idea to what it is today has been amazing.
Today the Company’s growth and profitability are accelerating and we are delivering on our mission to transform the way people shop and eat, but after 13 years I want to contemplate my next challenge.”
Deliveroo agreed to be taken over by DoorDash in May, in a deal that put Shu in line for a £172m payout.
Norges Bank cuts interest rates
We have a rate cut to digest… in Norway.
The Norges Bank has cut its policy rate from 4.25% to 4% today, judging that highest interest rates have helped to cool the Norwegian economy and dampen inflation in recent years.
Governor Ida Wolden Bache says:
“The job of bringing inflation back to target has not been completed, but a cautious easing of monetary policy will pave the way for returning inflation to target without restraining the economy more than needed.”
The Norges Bank also indicates that “a somewhat higher policy rate will likely be needed ahead compared with the outlook in June”.
They say:
“If the policy rate is lowered too quickly, inflation could remain above target for too long. On the other hand, an overly tight monetary policy stance could restrain the economy more than needed to bring inflation down to target.”
Shares in Next have tumbled around 6% this morning, after it gave a gloomy assessment of the UK economy (see earlier post).
Next are the top faller on the FTSE 100 index, despite reiterating its profits and sales guidance for this year.
Investors will have noted that Next believes “the UK economy is likely to weaken going forward,” and warned that “The medium to long-term outlook for the UK economy does not look favourable.”
There may also be disappointment that Next hasn’t raised its guidance, something it managed back in July.
Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, says:
“The primary concern going into the second half of Next’s financial year is the tough economic outlook in the UK. Management has ramped up its political statement on the UK economy, sounding the alarm while criticising the government as job vacancies shrink and applications rise. However, whilst there is a reason to be cautious, management does not believe it is not approaching a cliff edge.
“Despite these challenges, Next is well positioned to weather any looming storm or uncertainty. We see continued strength in Next’s platform with Next’s brand continuing to do well, up 6%, with opportunities to invest in quality. In third party brands which continues to power ahead (up 13%), they are seeing opportunities in sports, premium and luxury, whilst in International they are seeing growth across all brands and channels as the group scales.
Updated
Pets at Home slashes profits forecast; CEO leaves
Retailer Pets at Home has just startled the City by announcing the immediate exit of its CEO, and slashing profit forecasts, sending its shares sliding.
Shortly after the London stock market opened, Pets at Home revealed that CEO Lyssa McGowan has “left the business with immediate effect”, and that a search for a permanent replacement was underway.
Ian Burke, non-executive chair, has assumed the role of executive chair, meaning he’ll be running the business until a permanent CEO has been recruited.
Pets at Home also reports a “performance gap” at its retail operations versus its plans, and now expects underlying pre-tax profits in the range £90-100m this financial year.
The City had been expecting pre-tax profits this year of £115m, down from £133m last year.
Shares in Pets at Home have tumbled by 20% in the last few minutes. The company had benefited from the surge in pet ownership in the Covid-19 pandemic, but says the pet retail market has remained subdued.
Next reports falling vacancies and rising applications
The health (or otherwise) of Britain’s jobs market will be on the Bank of England’s mind when it sets interest rates today – and the latest update from retailer Next may concern them.
Next has told the City this morning that its vacancies have fallen across the board, down 35% overall over the last two years, but with deeper falls at its stores.
At the same time, applications have increased by +76%, with applications per vacancy 2.7 times higher than two years ago.
In other words, more people are chasing fewer jobs – a recipe for higher unemployment and lower wage growth.
Next cites three causes:
Increasing cost of employment (due to the higher minimum wage, and increased employers’ national insurance contributions)
Mechanisation and AI, which are replacing some manual and desk-based functions
Increasing legislative barriers to employment (warning that the upcoming Employment Rights bill will reduce jobs and eliminate earnings potential).
The company says:
The pressure on employment is unlikely to be like past recessions, where structural changes have wiped out whole industries, resulting in mass redundancies and regional slumps. These changes are likely to affect people employed in most sectors, and so the effects will be more gradual over time.
Our guess is that most companies will respond to the increasing cost of employment by not filling vacancies, rather than large-scale redundancies (that has certainly been our experience). This, to some extent, is good news because it means we are unlikely to see widespread or sudden economic shocks.
The problem is likely to be felt by those looking to enter the workforce or move jobs – the challenge will be finding suitable vacancies. That certainly resonates with the stories we hear about the difficulties young people are experiencing when trying to find work.
Next also reported strong financial numbers for the last six months: full-price sales rose 10.9% in the six months to July, with pre-tax profits up 13.8%.
Bank of England: What the experts expect
Andrew Wishart, senior UK economist at Berenberg, says there is “no chance” of a change in interest rates today, so the focus will instead be on the pace of quantitative tightening (QT).
Wishart adds:
We expect the BoE to slow the pace of balance sheet reduction from £100bn to £60bn per annum (consensus £72bn). That would both keep the amount of active sales the BoE undertakes broadly steady and decrease the payments HM Treasury (HMT) makes to the BoE to cover its losses, thereby reducing the budget deficit. Slower QT would be a win-win for bond holders.
Kathleen Brooks, research director at XTB, points out that educing QT is not without risk, explaining:
The bonds on the BOE’s balance sheet have been losing value as bond prices have fallen, and yields have risen in recent years. In contrast, the amount that the BOE pays in interest on bank reserves has been rising, and the BOE has required Treasury transfers to manage this.
Ultimately, this will be for the Chancellor to solve, and it could lead to bank taxes included in this Autumn’s budget.
Sanjay Raja, UK economist at Deutsche Bank, suggests the Bank could tweak its guidance on the path of interest rates:
The vote split. We expect a 7-2 vote split to keep Bank Rate on hold. Alan Taylor and Swati Dhingra, we think, will opt for a quarter-point rate cut in September.
The forward guidance. If there’s any surprise in the MPC minutes, it’s likely to come from the Bank’s forward guidance. There are three paths here the MPC can take: one, stick to its current guidance of ‘gradual and careful’ rate cuts, two, tweak its current guidance to ‘gradual and cautious’ rate cuts, or three, simply, drop the current guidance entirely. We place a 40/20/40 probability for each of the three paths. Indeed, there’s a material risk, in our view, that the MPC abandons its ‘gradual and careful’ guidance surrounding the downward path for Bank Rate.
The QT decision. We expect the MPC to reduce its QT envelope from £100bn to £70bn with a landing zone of £65-75bn.
It would be a big shock for the City if the Bank of England doesn’t leave interest rates on hold at midday at 4%.
The money markets are indicating there’s a 97% chance of ‘no change’, and just a 3% possibility of a hike back to 4.25%.
Last month, the Bank’s nine policymakers were badly split – with four voting to hold rates at 4.25%, four favouring a cut to 4%, and one initially plumping for a large cut to 3.75%, before joining the ‘smaller cut’ gang in a second vote.
Introduction: Will Bank of England cut QT bond sales today?
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
All eyes are on the Bank of England today as it prepares to announce its latest monetary policy decision at noon UK time, but for once interest rates are not on everyone’s mind.
The BoE is widely expected to leave Bank Rate unchanged at 4%, a day after UK inflation remained painfully high over its target at 3.8%.
The real interest is whether it adjusts its bond-selling programme, giving a helping hand to chancellor Rachel Reeves.
Under that “quantitative tightening” (QT) programme, the Bank has been selling some of the government bonds it bought during the financial crisis and the Covid-19 pandemic. QT has come under growing criticism for pushing up borrowing costs -- as the Bank’s steady selling has weighed on bond prices, which lifts bond yields.
The Bank is due to make its annual assessment of QT today, and many City economists expect it to slow the unwinding process.
Over the last months, the Bank conducted £100bn of QT, through active sales and by not replacing bonds as they mature. Economists are expecting policymakers will slow the pace of reduction in gilts to around £72bn.
A slowdown in gilt sales would help Reeves by easing the pressure on elevated gilt yields, which hit a 27-year high last month. Lower yields could help give the chancellor some headroom in her autumn budget calculations.
Laith Khalaf, head of investment analysis at AJ Bell, says:
“The gilts held by the Bank of England have turned from making a tidy profit for the government into a costly expense now interest rates have risen and the Quantitative Easing (QE) programme is being slowly unwound.
In essence, we are now paying for the cost of the extraordinary stimulus provided by the Bank of England in the wake of the financial crisis, which started over 16 years and eight chancellors ago. Rachel Reeves is in the unfortunate position of being the mug now holding the enormous bill to present to the taxpayer.
Last night, the Federal Reserve cut US interest rates for the first time this year, responding to signs that America’s jobs market is weakening.
The agenda
9am BST: Norges Bank to set Norwegian interest rates
Noon BST: Bank of England monetary policy decision
1.30pm BST: US weekly jobless claims data
