BoE Plans Six-Month Pause in Gilt Sales
BoE Plans Six-Month Pause in Gilt Sales
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Key Points
1
The Bank of England held its policy rate at 3.75% by a 6-3 vote, indicating a divided Monetary Policy Committee despite the decision to pause.
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The BoE plans to reduce its government-bond holdings to zero through a multiyear programme, with sales and maturities averaging £46 billion annually through 2034—below the £50 billion reduction expected by markets.
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The central bank raised its third-quarter GDP growth forecast to 0.4% and expects inflation to reach twice its 2% target early next year.
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August core CPI was unchanged at 2.6%, while services inflation eased to 3.4%, below the 3.5% expected by economists—an important factor behind reduced expectations for additional rate hikes.
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The FTSE 100 rose 0.6% to its highest level in more than a week, even as the pound fell 0.1% against the dollar to $1.3364, its weakest level in seven weeks.
The Bank of England held its policy rate steady at 3.75% and announced a slower pace of bond sales, pausing gilt purchases for six months. The 10-year gilt yield fell to roughly 5.25% as investors reduced bets on future rate hikes. Market Screener reported the decision came on a divided 6-3 vote from the Monetary Policy Committee.
UK inflation rose to 3.1% in August, but services inflation came in softer than expected at 3.4%, easing concerns about persistent price pressures. Market Screener noted the BoE raised its third-quarter GDP forecast to 0.4% and expects inflation to peak near twice its 2% target early next year.
Quantitative Tightening Takes a Breather
The Bank of England plans to reduce its government-bond holdings to zero over a multiyear programme. The central bank will conduct sales and maturities averaging £46 billion annually through 2034—lower than the £50 billion annual reduction markets had expected. A six-month pause halts sales of long-dated gilts while the BoE reassesses its strategy.
Services Inflation Eases Rate-Hike Worries
August core inflation held steady at 2.6%, while services inflation eased to 3.4%—below the 3.5% economists had predicted. Market Screener reported this softer-than-expected reading strengthened investor conviction that the BoE will not raise rates further. The easing pressures contrast with the overall 3.1% headline inflation rate.
Pound Weakens Despite Growth Optimism
Sterling fell 0.1% against the dollar to $1.3364, its weakest level in seven weeks, after the BoE's decision. The FTSE 100 index rose 0.6% to its highest level in more than a week. Investors weighed the slower pace of tightening against upgraded growth forecasts and lingering oil-price risks from Middle East tensions.
Oil Prices and Middle East Risk Loom
Elevated oil prices and uncertainty around Middle East conflict remain key inflation risks for the BoE. Market Screener reported the central bank acknowledged these pressures could complicate future policy decisions. Lower oil prices and stronger-than-expected growth provided some relief, but geopolitical instability keeps upside inflation risks on the table.
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