LONDON
The Bank of England's Monetary Policy Committee voted 6-3 to hold its benchmark rate at 3.75 percent, pausing quantitative tightening sales of government bonds and triggering a sharp rally across the gilt curve.
Governor Andrew Bailey and five other MPC members kept rates steady, while three members voted to raise to 4 percent. The decision reflects the central bank's assessment that second-round wage and price effects from the energy shock remain contained.
"Surging global energy prices have had a quite subdued impact on general inflation in the UK, but it is early days," Bailey said.
Gilt yields collapsed on the news. The 10-year yield fell 9 basis points to 5.22 percent, while the 30-year dropped from 5.86 percent to 5.75 percent. The rally reflects two drivers: relief that rate hikes are off the table and the halt to the Bank's asset sales program.
The BoE has suspended quantitative tightening auctions indefinitely—unlikely to restart before April—during Treasury consultations. When sales do resume, the Bank plans a gradual path: £20 billion annually over eight years. The pause removes near-term supply pressure from an already stressed gilt market.
Bailey emphasized that financial conditions have already tightened enough to provide monetary restraint without additional rate increases. With UK inflation at 3.1 percent—above the 2 percent target—the three dissenting voters likely prioritized headline risk. Bailey signaled policymakers have time to watch how energy pass-through evolves before tightening further.
The decision comes a day after the Federal Reserve raised rates for the first time in over three years, highlighting divergent central bank postures: the Fed tightening into resilient US demand while the BoE pauses as UK growth falters.
