Bank of England holds rates at 4% and slows gilt reductions as inflation remains stubborn

The Bank of England’s Monetary Policy Committee (MPC) held rates at 4.0% today, which was widely expected by investors. The decision was split 7-2, with most opting to keep rates unchanged, while two members favoured a 0.25% reduction to 3.75%. 

Natalie Brain, Partner in LCP’s investment team, commented:

“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, to a reduction of £70bn over the next year (from £100bn over the last year). 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.”