Bank of England Holds Interest Rate at 4%, Slows Quantitative Tightening

Monetary Policy Committee Maintains Bank Rate

The Bank of England's Monetary Policy Committee (MPC) announced on September 18, 2025, its decision to hold the base interest rate steady at 4%. The vote was split 7-2, with the majority opting to maintain the rate, while two members advocated for a 25 basis point cut to 3.75%. This decision follows a 25 basis point reduction in August, bringing the rate to its lowest level since March 2023.

Quantitative Tightening Pace Adjusted

In a related move, the MPC also voted by a majority of 7-2 to adjust the pace of its quantitative tightening (QT) program. The Bank will now reduce its stock of UK government bond purchases by £70 billion over the next 12 months, from October 2025 to September 2026. This represents a slowdown from the previous annual target of £100 billion. The decision aims to reduce total gilt holdings to £488 billion and minimize the impact on volatile gilt markets.

Rationale Behind the Decisions

The MPC's decision to hold rates and slow QT was influenced by a complex economic landscape. While significant disinflation has occurred over the past two and a half years, supported by a restrictive monetary policy stance, inflation remains above target. The annual Consumer Price Index (CPI) inflation stood at 3.8% in August and is expected to rise slightly in September before trending back towards the 2% target.

Policymakers noted that wage growth, though still elevated, has eased and is forecast to slow further. However, upside risks to medium-term inflationary pressures remain prominent. The committee also considered subdued UK GDP growth, a gradually loosening labor market, and existing slack in the economy. Governor Andrew Bailey emphasized a 'gradual and careful' approach to further withdrawal of monetary policy restraint, stating, 'We're not out of the woods yet so any future cuts will need to be made gradually and carefully.'

MPC Member Votes

The members who voted to maintain the Bank Rate at 4% were Governor Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine Mann, Huw Pill, and Dave Ramsden. Swati Dhingra and Alan Taylor voted for a 25 basis point cut. Regarding quantitative tightening, the £70 billion reduction was supported by Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Dave Ramsden, and Alan Taylor. Catherine Mann preferred a reduction of £62 billion, while Huw Pill voted to maintain the pace at £100 billion.