BoE Holds Rate at 3.75%; Signals Major Shift in Quantitative Tightening Program

The Bank of England decided to keep the bank rate unchanged at 3.75%, though the decision was reached with a 6-3 vote. The MPC noted that while there was little evidence of second-round effects in wages and prices, the risks of inflation being tilted to the upside had grown. The BoE also announced it had scrapped plans to sell long-dated gilts as part of a major quantitative tightening program overhaul. Under the new proposals, the bank will keep £120 billion of gilts maturing in 2049 or later, matching them against future banknote issuance. Another £222 billion maturing by 2035 will be run off, while the remaining £146 billion maturing between 2035 and 2049 will be sold at a pace of £20 billion annually, potentially through the Debt Management Office.

The BoE's actions come as the Iran conflict drives up energy prices, impacting the central bank's operational environment. The new quantitative tightening structure introduces a major funding mechanism that could affect UK government borrowing costs. The BoE stated that the arrangements aim to preserve the independence of monetary policy and maximize value for money.

The Iran conflict pushed energy prices up, impacting the Bank of England's operational environment. The conflict is driving up energy prices, prompting UK government policy and the Bank of England to address market regulation.