The Bank of England has announced it is scaling back the rate at which it is selling bonds into the financial market as part of its quantitative tightening programme.
The Bank's Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4% at its September meeting, but more controversial still is its annual decision over the reversal of its crisis-era quantitative easing programme.
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Over the last two years, the Bank has been in the midst of actively selling off bonds bought during the financial crisis and COVID-19, as part of its economic rescue measures. Those amounts were averaging out at £100bn a year.
Today, the Bank announced it is reducing the annual sale rate to £70bn a year.
It has also announced it will, in future, be selling fewer long-dated government bonds.
"The new target means the MPC can continue to reduce the size of the Bank's balance sheet in line with its monetary policy objectives while continuing to minimise the impact on gilt [government bond] market conditions," said governor Andrew Bailey.
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On the interest rate decision, Mr Bailey said, "We held interest rates at 4% today. Although we expect inflation to return to our 2% target, we're not out of the woods yet so any future cuts will need to be made gradually and carefully."
He later added: "There will be some further reductions but... the timing and scale of those is more uncertain now".
The decision was not unanimous, with two of the seven MPC members voting to cut the base interest rate by 0.25 percentage points.
While the market expects rates to be held again at the next meeting in November, a cut in December is still seen as likely by traders, according to data from the London Stock Exchange Group (LSEG).
It is not, however, fully priced in.
John Wyn-Evans, head of market analysis at investment firm Rathbones, said: "This meeting was another milestone on the road to what is scheduled to be the most important event between now and Christmas, namely the budget.
"The government would dearly love to see lower interest rates to stimulate the housing market and consumer demand more generally. However, the Bank of England is displaying its independence at a time when investors are nervous that central banks are at risk of succumbing to control from political leaders, with the battle between the White House and the US Federal Reserve being most critical.
"This leaves Chancellor Rachel Reeves struggling to balance the books, and her task will be made even more difficult should reports that the Office of Budget Responsibility is set to reduce its forecast for the UK's productivity growth be proved correct."
(c) Sky News 2025: Bank of England leaves interest rate unchanged and slows quantitative tightening
