Bank of England to hold 4% rate and slow gilt runoff

The Bank of England is widely expected to hold its key interest rate at 4 percent when the Monetary Policy Committee meets on Thursday, while signalling a likely slowdown in its programme of quantitative tightening as policymakers seek to calm volatility in the gilt market. Economists said the central bank will take a cautious stance amid persistent inflation and a weakening UK economy, with the decision due at 1100 GMT.

Officials face a difficult balance. Consumer price inflation held at 3.8 percent in August, wage growth remains elevated at about 5 percent and the labour market has shown signs of stagnation, with unemployment at multiyear highs and job vacancies declining. Thomas Pugh, chief economist at auditing firm RSM UK, said it was all but guaranteed the Bank would keep rates on hold, adding that the committee was likely to stick to its gradual and cautious guidance as it weighs rising prices against a softer jobs market.

At the same time, pressure on the long end of the gilt market has intensified. Gilt yields rose sharply in recent months, increasing the cost of government borrowing and prompting calls for the Bank to temper its active sales of government bonds. Philip...