Key facts
- The Bank of England held its benchmark interest rate at 3.75%.
- Officials warned that higher energy costs could lead to further rate hikes.
- The Bank of England will pause gilt sales auctions while reviewing a model for selling gilts to the Government.
- The central bank plans to unwind £146 billion of gilts maturing between 2035 and 2049 through sales to the government.
- Inflation was projected to be over 4% next year.
The Bank of England maintained its benchmark interest rate at 3.75% on September 17, 2026, as it grapples with persistent inflation and the potential for further price shocks stemming from geopolitical tensions in the Middle East. Governor Andrew Bailey warned that energy prices could escalate due to disruptions in the Strait of Hormuz, a critical shipping lane.
Alongside the decision to hold rates, the central bank announced a significant overhaul of its bond sale program. The Monetary Policy Committee (MPC) has set a multi-year plan to reduce the stock of UK government bonds held for monetary policy purposes to zero. This will involve annual sales of £20 billion alongside maturing gilts. To implement this, the Bank Executive has decided to pause its Asset Purchase Facility (APF) gilt auctions while it reviews a new model. Under this proposed model, HM Treasury would instruct the Debt Management Office (DMO) to purchase the gilts the Bank intends to sell, at market prices. The Bank plans to sell £146 billion of gilts maturing between 2035 and 2049 through this mechanism, at an annualized pace of £20 billion, concluding around 2034. The Bank will retain £222 billion of gilts maturing before 2035 and £120 billion of the longest-dated gilts to be held to maturity.