The Bank of England is widely expected to leave interest rates unchanged at 4% when its decision is announced at midday. A surprise move would deliver a major shock to the City, with money markets currently pricing in a 97% probability of no change and only a 3% chance of a hike back to 4.25%.
The vote is likely to draw scrutiny after last month’s meeting revealed a rare split among the Bank’s nine policymakers. Four opted to keep rates at 4.25%, while another four supported a cut to 4%. One initially argued for a steeper reduction to 3.75% before switching back to help the more minor cut in a second vote.
Investors will be watching closely for any signals in today’s statement about the Bank’s outlook for growth and inflation.
Bank of England Expected to Slow Pace of Gilt Sales
In recent months, the Bank of England has carried out around £100bn of quantitative tightening (QT) through active gilt sales and by not reinvesting proceeds from maturing bonds. Economists now expect policymakers to slow the pace of gilt reduction to about £72bn.
Such a move could provide relief for Chancellor Rachel Reeves by easing pressure on the gilt market, where yields touched a 27-year high last month. Lower yields would reduce government borrowing costs and potentially offer Reeves some extra room in her autumn budget planning.
Laith Khalaf, head of investment analysis at AJ Bell, explained the dilemma:
“The gilts held by the Bank of England have turned from making a tidy profit for the government into a costly expense now interest rates have risen and the Quantitative Easing (QE) programme is being slowly unwound.
In essence, we are now paying for the cost of the extraordinary stimulus provided by the Bank of England in the wake of the financial crisis, which started over 16 years and eight chancellors ago. Rachel Reeves is in the unfortunate position of being the mug now holding the enormous bill to present to the taxpayer.”
Fed Delivers First Rate Cut of 2025
The US Federal Reserve’s Federal Open Market Committee (FOMC) delivered its first rate cut of 2025 last night, lowering the federal funds rate by 25 basis points to 4.00–4.25%, in line with market expectations.
