Bank of England Holds Rates at 4%

The Bank of England (BoE) voted to keep interest rates steady at 4% while announcing a slowdown in its program of quantitative tightening (QT), in a move designed to ease pressure on long-dated government bonds.

The central bank said it will reduce annual gilt sales from £100 billion to £70 billion, redistributing sales away from longer maturities. Under the new plan, 40% of sales will target short-term bonds, 40% medium-term, and just 20% long-term, reflecting the Bank’s effort to minimize stress on the most sensitive segments of the market.

The Monetary Policy Committee (MPC) voted 7–2 in favor of holding the policy rate, with Swati Dhingra and Alan Taylor once again calling for deeper cuts after last month’s quarter-point reduction.

Governor Andrew Bailey defended the decision, saying the recalibrated QT pace allows the Bank to shrink its balance sheet “while reducing market disruption,” stressing that “the task is not yet complete and any further rate cuts must be cautious and gradual.”

Yet differences within the MPC remain stark. Chief Economist Huw Pill favored maintaining the previous £100 billion pace of gilt sales, while Catherine Mann argued for an even faster reduction to £62 billion.

The BoE left its inflation forecast unchanged, expecting price growth to peak at 4% this month before gradually falling toward the 2% target by the second quarter of 2027. Meanwhile, growth expectations were revised slightly higher, with GDP now projected to expand by 0.4% in Q3, up from an earlier estimate of 0.3%.

Despite the adjustment, markets continue to price in only a one-in-three chance of further rate cuts this year, reflecting persistent uncertainty over Britain’s fragile economic outlook.