- Bank of England decision due at noon.
- The Bank is also expected to slow the pace of its bond-selling programme, known as quantitative tightening (QT).
- Policymakers are weighing rising inflation, higher mortgage interest costs and a weak employment market.
- The Bank’s balance sheet reduction has drawn scrutiny, with critics arguing it adds to UK borrowing costs.
Investors are focused on Threadneedle Street, where the Bank of England is widely expected to keep interest rates unchanged while adjusting the pace at which it shrinks its government bond holdings. The decision is due at noon.
The rate call comes against a difficult backdrop for UK households and businesses. Inflation has been rising, mortgage interest costs remain elevated, and the employment market looks weak. Those three pressures form the core of the policy dilemma: holding rates steady avoids adding further strain to borrowers and the labour market, but it does little to cool price growth if inflation proves persistent. A hike, meanwhile, would risk deepening the squeeze on mortgage holders and hiring at a moment when the economy already appears fragile.
Why the Bond-Selling Programme Is in the Spotlight
Alongside the rate decision, the Bank is expected to slow its bond-selling programme. The central bank accumulated a large portfolio of government bonds during years of quantitative easing, and it has been reducing that stockpile through a process known as quantitative tightening. The scale of the reduction has become politically and financially contentious. Critics argue that active sales push up UK borrowing costs at a time when the government’s fiscal position is already stretched, and that the programme amounts to a substantial implicit cost borne by the public.
The debate has drawn high-profile attention, including calls for the Bank to slow or halt bond sales in order to bring down UK borrowing costs. The argument is that gilt yields — and therefore the interest rate the government pays to finance itself — are influenced not only by the policy rate but also by the supply of bonds the market must absorb. If the Bank steps back from selling, the reasoning goes, the market faces less pressure and yields could ease.
What a Hold Means for Markets and Mortgages
A hold would offer limited immediate relief. Existing tracker and variable-rate mortgage holders would see no change in their payments from the decision itself, while fixed-rate pricing would continue to reflect expectations for future policy and long-term gilt yields. If the Bank simultaneously signals a slower pace of bond sales, that could modestly support gilt prices and, at the margin, feed through to the cost of new fixed-rate mortgages.
For sterling, the calculus is more two-sided. A hold that is fully priced in leaves little room for a sharp currency reaction, but any hint that the committee is more worried about inflation than about growth could lift the pound by pushing back expectations of future cuts. Conversely, emphasis on labour market weakness would weigh on sterling by reinforcing the view that the next move is down rather than up.
The Political Dimension
The Bank’s balance sheet has become a live political issue. The £120bn figure attached to the cost of the programme has fuelled arguments about accountability, with critics questioning how much power the central bank wields over public finances without direct democratic oversight. That tension is unlikely to fade, particularly if borrowing costs stay high and fiscal decisions — including any tax increases — are layered on top of existing pressures.
For now, the market’s base case is continuity: rates unchanged, bond sales slowed. The details of the statement, and any split in the vote, will determine whether investors read the outcome as a pause or as the beginning of a loosening cycle.
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