BoE Maintains Rates and Lowers QT Pace

As anticipated, the Bank of England kept interest rates unchanged at its monetary policy meeting concluding on September 18, with a 7-2 vote among MPC members in favor of maintaining the status quo , citing the need to weigh inflation risks against potential demand weakness . The dissenting votes came from Alan Taylor and Swati Dhingra, who advocated for a 25 - basis point rate cut , noting that the disinflation process is ongoing . As we also anticipated, t he pace of quantitative tightening has been reduced, with the BoE deciding to shift sales away from long-dated gilts to mitigate the impact on volatile bond markets. The MPC voted 7-2 to lower the annual QT pace to £70 billion from £100 billion, marking the first slowdown in the unwinding of gilt purchases. The sales over the coming year will be divided 40:40:20 between short-, medium-, and long-dated gilts based on their initial purchase price.  The MPC will be guided by key principles: using the Bank Rate as its main policy tool, conducting sales without disrupting financial markets, and implementing these sales gradually and predictably. The Committee reiterated that its monetary policy is not on “a pre-set path,” emphasizing its responsiveness to new evidence and reaffirming its commitment to “a gradual and careful approach.” The expected increase in inflation to 4% in September, coupled with a somewhat stronger-than-previously-anticipated GDP for Q3, indicates there is no immediate urgency to cut interest rates this year. We stand by our forecast of no further rate changes for the remainder of the year, as the Committee seeks to gather more evidence on the ongoing disinflation process. Recent data reflecting persistent inflation and only marginal job losses do not provide adequate justification for altering the rate currently .