Bank of England holds UK interest rates at 4% amid inflation fears

"Alongside the rate decision, the central bank announced that it would slow the pace of government bond sales. Over the next 12 months, it will shrink its balance sheet by £70 billion - down from £100 billion last year - through a mix of gilt sales and maturities. The Bank said the move was designed "to minimise the impact on gilt market conditions" after long-term UK debt yields surged to their highest level in nearly three decades."

"The pause comes after the Office for National Statistics (ONS) confirmed this week that inflation held steady at 3.8 per cent in August, the highest level since early 2024 and nearly double the Bank's 2 per cent target. Services inflation, a key measure of domestic price pressures, rose to 5 per cent. Food prices and higher employment costs linked to Chancellor Rachel Reeves's £25 billion national insurance raid on businesses were cited by the Bank as likely to push inflation higher in September, forecasting a 4 per cent reading."

The Bank of England paused monetary easing and left interest rates at 4 per cent, with seven MPC members voting to hold and two backing a quarter-point cut. Markets expect rates to remain at 4 per cent through 2025. The Bank will reduce its balance sheet by £70 billion over 12 months, down from £100 billion, via gilt sales and maturities to minimise pressure on gilt market conditions after a surge in long-term yields. Inflation remained at 3.8 per cent in August, with services inflation at 5 per cent, and food and employment cost pressures are expected to push inflation higher, prompting a gradual, careful policy stance despite prior rate cuts.

Read at Business Matters