STATEMENT: BoE holds rates at 3.75%, as expected; votes 6-3 (exp. 6-3), with Greene, Mann and Pill voting for a 25bps hike; APF gilt sales to be paused until April 2027

VOTE: BoE holds Bank Rate at 3.75% in 6-3 vote Greene, Mann, Pill vote for 25bps raise to 4% Bailey, Breeden, Dhingra, Lombardelli, Ramsden, Taylor vote to maintain Bank Rate at 3.75% BoE unanimously votes to reduce stock of UK government bond purchases held for monetary policy purposes to zero BoE plans GBP 20bln annual gilt sales alongside maturities, with stock unwound at average annual pace of GBP 46bln by end-2034 QT BoE MPC voted 9-0 to unwind QT at an average annual pace of GBP 46bln through 2034 (BoE Market Poll: GBP 50bln for 2026/27) BoE APF gilt auctions will pause until April 2027 while it considers selling gilts directly to the government rather than the market BoE QT will include GBP 20bln of annual active sales alongside maturing gilts (BoE Market Poll: GBP 19.5bln active sales for 2026/27) BoE will hold GBP 222bln of gilts maturing before 2035 and GBP 120bln maturing in 2049-2071 to maturity (BoE Market Poll: 2026/27 sales 43% short, 41% medium, 16% long) BoE will retain long-dated gilts in the APF to back banknotes rather than for monetary policy and replace them as they mature GUIDANCE: Stands ready to act as necessary to ensure CPI inflation remains on track to meet 2% target in medium term Policy stance required will depend on scale and duration of energy shock and how it propagates through economy Risks to inflation outlook are tilted to upside, and more so than at time of July Monetary Policy Report It is not appropriate to wait too long for evidence of second-round effects before responding with policy Geopolitical environment remains highly uncertain and inflation outlook could change materially as events unfold Most members say current UK short-term market rates are imparting a broadly sufficient degree of monetary policy restraint Bank Rate should remain active monetary policy tool as QT proceeds INFLATION: UK CPI inflation rises to 3.1% in August and is likely to rise further over coming quarters BoE expects CPI inflation to increase to around 3.75% in Q4 2026 and slightly above 4% in Q1 2027 Around 0.7 ppts of August CPI inflation's 1.1 ppt overshoot relative to 2% target reflects direct energy price effects Services inflation at 3.4% in August, unchanged from July and down from 4.5% in March Measures of underlying CPI inflation remain above target-consistent rates Little evidence so far of material second-round effects in price and wage-setting Risk of material second-round effects has increased and is likely to rise further if energy prices stay elevated Direct energy contribution to inflation is expected to increase over coming quarters Indirect impact of higher energy prices through supply chains has been small to date Indirect energy effects may have been delayed rather than diminished Household inflation expectations remain elevated and sensitive to energy prices DMP respondents expect one-year-ahead wage growth of 3.4%, stable since before conflict began Underlying private sector wage growth estimated at around 3.5%, slightly above target-consistent estimate Private sector regular pay growth at 2.9% in three months to July, down from 3.3% at start of year Bank Agents expect annual food inflation around 4% at end-2026 BoE says upside risks to food inflation remain for 2027 Ofgem energy price cap to rise to GBP 1,723 for October-December and is expected to rise substantially further in Q1 2027 ECONOMY: UK GDP rises 0.4% in Q2 2026 Monthly GDP rises 0.4% in July BoE staff update implies GDP growth of 0.4% in Q3 2026 Growth has proved somewhat more resilient than expected Labour demand remains weak BoE says there is still a margin of slack in labour market UK unemployment estimated at 4.9% in three months to July Some timely employment indicators edged up in August It is now likely there has been some stabilisation in slack Soft labour market conditions and higher interest rates will act to reduce inflation over time UK financial conditions have tightened further since July Two-year fixed mortgage rates around 95 bps higher than before conflict Full and fast pass-through continues from short-term OIS rates to key household and business lending rates FORECASTS: BoE expects CPI inflation around 3.75% in Q4 2026 BoE expects CPI inflation slightly above 4% in Q1 2027 BoE staff update implies GDP growth of 0.4% in Q3 2026 DMP respondents expect one-year-ahead wage growth of 3.4% Bank Agents expect annual food inflation around 4% at end-2026 Median Market Participants Survey expectations imply prolonged period of unchanged Bank Rate UK short-term interest rate curve peaks at around 4.9% by end-2027 Nearly all September Market Participants Survey respondents expected Bank Rate to remain unchanged at this meeting COMMENTARY: Bailey - The risk for energy prices, and thus inflation, continues to be on the upside. Indirect energy pass-through has so far been weaker than we had expected and there continues to be very limited evidence of emerging second-round effect. But if the conflict in the Middle East persists for an extended period, and the risk of second-round effects emerging increases, it is likely that policy may have to tighten. Mann - Upside risks to inflation have increased as the ‘sporadic continuance’ of conflict has ratcheted up energy prices well above the baseline from the July Report. Raising Bank Rate is a better risk-management strategy when faced with uncertainty about inflation dynamics and second-round effects. Greene - The news since July suggests a greater risk of second-round effects and inflation persistence. Waiting for definitive evidence of second-round effects before acting would leave policy behind the curve. Pill - Energy price developments since our previous meeting have been significant. Raising Bank Rate would put the MPC in a better place to address risks to price stability as these uncertainties unfold, especially since any resulting second-round effects, once entrenched, are costly to overcome. Lombardelli - The impact of the conflict to date has been more limited than expected on both sides of the inflation and activity trade-off. Pass-through to indirect effects of higher energy prices has been slower. The outlook for energy prices is uncertain and could change in the coming weeks, but the case for raising Bank Rate is building the longer the conflict continues without lasting resolution. FISCAL: GBP 120bln of longest-dated gilts will be retained to back current and future banknote issuance GBP 368bln of gilts held for monetary policy purposes will be unwound in full Expects GBP 222bln of gilts to mature passively and GBP 146bln to be sold APF sales to Government model remains subject to final decision Progress on potential APF sales to Government will be reviewed before April 2027