7OCT

MPC holds 3.75% and maps 2034 gilt exit

4 min read

12:52UTC

The MPC held Bank Rate at 3.75% on 16 September, with three members wanting 4%, and set a path to run the Bank's gilt holdings down to zero by 2034.

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EconomicDeveloping

Key takeaway

The MPC held at 3.75% and plans to run its gilt holdings down to zero by 2034.

The Bank of England's Monetary Policy Committee (MPC) held Bank Rate, the Bank's main interest rate, at 3.75% on 16 September by six votes to three, with the dissenters wanting 4%⁠¹. It had also held in July. Since then Brent Crude has risen 36% and wholesale gas 78%, and the MPC expects inflation slightly above 4% early next year.

The same meeting set out a plan to run the Bank's monetary-policy gilt holdings down to zero by September 2034, keeping £120bn aside to back banknotes. That means about £46bn a year, £20bn of it sold actively into the market. The Telegraph reported, as relayed by Newsquawk, that active sales of 20- and 30-year gilts will stop⁠²; the Bank's summary does not say so in the part read for this briefing. If accurate, the Bank steps back from the longest maturities a week after the Debt Management Office's long-gilt syndication.

The Financial Policy Committee (FPC), which watches risks across the financial system, said in its record published on 30 September that gilt yields stand at levels last seen in 2008⁠³. It judged households and firms resilient, with their debts broadly unchanged since July, and put banks' underlying return on tangible equity at 17.1% in the second quarter. The FPC cut banks' capital requirement last December after a severe stress test.

The FPC said AI hyperscalers, the largest cloud and AI companies, accounted for 47% of sterling corporate bond issuance so far this year. The FPC caps at 15% the share of new mortgages lent at 4.5 times income or more. That share stood at 14.1%, and at 18.1% among first-time buyers, a sub-group within the aggregate cap.

Deep Analysis

In plain English

Bank Rate is the Bank of England's main interest rate. It affects what banks charge on loans and pay on savings. Nine people vote on it. On 16 September six voted to keep it at 3.75% and three wanted 4%. The Bank also holds a large pile of government bonds (gilts) that it bought in earlier years to support the economy. It plans to shrink the pile to zero by September 2034. A separate committee (the Financial Policy Committee) watches for risks to the banking system. On 30 September it judged households and firms resilient.

Deep Analysis

Root Causes

The split vote follows from an energy price shock hitting an economy with weak growth. Brent Crude at +36% and wholesale gas at +78% since July raise inflation in the near term while squeezing demand, which pulls the MPC's members in opposite directions.

The gilt exit plan follows from the Bank's balance sheet. Its monetary-policy gilt holdings were bought under quantitative easing; running them down to zero by September 2034 returns the Bank to its pre-2009 shape, with £120bn set aside to back banknotes.

The mortgage cap exists because lending at 4.5 times income or more raises household debt exposure to rate rises: the FPC caps that share at 15% of new mortgages, and first-time buyers at 18.1% exceed it within a sub-group.

What could happen next?

Consequence
A 6-3 vote with the dissent leaning hawkish leaves the next MPC meeting open to a move up if energy-driven inflation persists.
Precedent
The 2034 end date sets a long, scheduled run-off that the Bank can slow if auctions weaken, as the Fed did in 2019.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: The US Federal Reserve ended its balance-sheet run-off in 2019 earlier than planned, after money-market stress in September of that year showed reserves had become scarce. Like the Bank's plan to hold £120bn against banknotes, the question was where the floor for central bank assets sits.

Counter-parallel: The Bank began active gilt sales in November 2022 and carried on through weak auctions, selling into a market that absorbed the supply. That outcome points the other way: active sales were sustainable when buyers were present.

Immediate: Bank Rate at 3.75% leaves floating-rate and tracker mortgage borrowers unchanged this month, while fixed-rate pricing follows gilts. The share of new mortgages at 4.5 times income or more was 14.1% against a 15% cap (FPC record, 30 September).

Structural: of the plan to reach zero by September 2034, about £46bn a year runs off, of which £20bn is sold actively. If active long-end sales stop, the remaining £26bn runs off through maturities, which removes less duration from the market than sales would. The FPC's note that AI hyperscalers took 47% of sterling corporate bond issuance adds a competitor for the same long-dated money the DMO is selling.

Consensus view: The Monetary Policy Committee majority judged that inflation expected slightly above 4% early next year, after Brent Crude rose 36% and wholesale gas 78%, justified holding rather than cutting. The Financial Policy Committee's 30 September record backs the resilience case, with banks' underlying return on tangible equity at 17.1% in the second quarter.

Counter-view: The three dissenting MPC members voted for 4%; a vote that size implies they weighed the inflation risk above the growth risk. The Telegraph, via Newsquawk, reports active sales of 20- and 30-year gilts will stop, which would soften the long end the MPC's own tightening feeds.

Key tension: Whether a Bank that holds rates and trims gilt sales can keep both inflation expectations and long-dated borrowing costs in check.

Sources:Bank of England·Newsquawk·Bank of England

Mentions:Bank of England →The Telegraph →Debt Management Office →Brent Crude →Federal Reserve →Monetary Policy Committee →Financial Policy Committee →Bank Rate →Newsquawk →

First Reported In

Update #4 · £8.1bn over forecast, and the 30-year at 6%

Bank of England· 7 Oct 2026

Read original →

Causes and effects

Caused by

Bank holds rate as 30% report strain

The MPC held Bank Rate in July and again in September, with three members now wanting 4%.

Occurred 30 Jul 2026

Read story →

Banks passed, so the buffer was cut

Last December's cut to banks' capital requirement preceded the FPC's September finding of resilient banks.

Occurred 30 Nov 2025

Read story →

30-year gilt passes 6%, last seen 1998

Gilt yields at 2008 levels are the backdrop to the MPC's gilt run-down plan and the FPC's record.

Occurred 7 Oct 2026

Read story →

This Event

MPC holds 3.75% and maps 2034 gilt exit

The Bank of England is holding rates against rising energy prices while planning to run its gilt holdings down by about £46bn a year, about £20bn of it through active sales, into a market already paying more to borrow.

Different Perspectives

Conservative Party

Leader Kemi Badenoch said Labour will run out of money and proposed lifting defence to 3% of GDP, paid for from welfare. Shadow work and pensions secretary Helen Whately put those savings at £23bn, "just the start".

Reform UK

Treasury spokesman Robert Jenrick pledged £80bn a year of spending cuts by the end of the next parliament and claimed £30bn a year of interest savings. The Spectator judged that the sums still do not fully add up.

Centre for Policy Studies

The right-of-centre think tank argued on 4 October that Britain is not a low-tax country once workplace pensions and student-loan repayments are counted. Its comparison rests on 2019 data.

Institute of Economic Affairs

The free-market think tank argued on 28 September that alcohol, tobacco and landfill duties raised £5.2bn less than the OBR projected. That comparison is separate from the five-month borrowing overshoot.

Resolution Foundation

The centre-left think tank said on 8 September that about £1 in every £12 of public spending now goes on debt interest. In July it put headroom against the fiscal rules at about £10bn.

Audit Scotland

It reported on 17 September that three Scottish budgets planned ScotWind drawdowns and drew nothing each time. It warned that using one-off receipts to balance annual budgets can weaken spending control.