The big picture
The Bank of England's September decision is one decision with two faces: Bank Rate stays at 3.75% while the MPC commits to unwinding the entire remaining gilt portfolio by 2034, an average pace of £46bn. The inflation it is fighting is imported — Brent at $106/barrel, up 36% since the July Report, with UK wholesale gas up 78% — and the Committee's own projection has CPI still above target in 2027 Q1. Bailey's condition for cutting — an end to the Middle East conflict and energy prices back at pre-conflict levels — makes the whole framework hostage to a variable no committee controls. The Czech National Bank's hold at 3.75% is the counterpoint: a central bank with no energy shock of its own leaves its spread to the ECB's tightening rather than to anything decided in Prague.
On the watchlist
- The CNB press conference in Prague this afternoon, for any signal on the corridor beyond the hold at 3.75%.
- The Bank of England's review of the gilt-sales model before April 2027, when APF auctions resume or the DMO route is made permanent.
- UK CPI releases through the autumn, testing whether inflation climbs toward the Bank's own projection of 4%.
- The ECB's next policy meeting, which sets the tightening path that Czech and euro-area spreads are priced against.
Top stories
Why it matters With Bank Rate pinned at 3.75% and services inflation at 3.4%, the gilt market must absorb £20bn of annual sales into 2034 — a persistent duration supply that caps how far the long end can rally even as the growth data soften.
The Committee judges it appropriate to maintain Bank Rate at this meeting and stands ready to act as necessary to ensure CPI inflation remains on track to meet the target in the medium term.
The energy shock is the dominant force: Brent crude reached $106/barrel and spot prices of Brent crude and UK wholesale gas had risen by 36% and 78% respectively since the period leading up to the July Report. CPI inflation is projected to reach slightly above 4% in 2027 Q1. Services inflation was 3.4% in August, unchanged from July, and annual growth in private sector regular Average Weekly Earnings was 2.9% in the three months to July, a little above expectations at the time of the July Report. The unemployment rate was estimated at 4.9% in the three months to July, and GDP had increased by 0.4% in 2026 Q2, with monthly GDP rising by 0.4% in July. The Committee's projections assume the July adverse scenario oil and gas price paths are a reasonable proxy for a state of the world in which the conflict continues with no clear resolution, and most members placed more weight on energy prices staying higher for longer in the absence of a lasting de-escalation. Some members, including Dhingra and Taylor, placed particular weight on the role of slack in moderating inflation, evidence of restrained pass-through, and the restrictive level of Bank Rate, allowing more time to observe evidence. The risk of second-round effects is greater the longer higher energy prices persist or are more volatile, and the geopolitical environment remains highly uncertain.
Separately, the MPC unanimously decided to reduce the stock of UK government bond purchases held for monetary policy purposes to zero via a multi-year plan, unwinding the remaining gilt holdings at an annual average pace of £46bn by end-2034, through annual sales of £20bn alongside maturing gilts. The unwind of the APF from its peak of £895bn in February 2022 to £488bn in September 2026 has already contributed an estimated small fraction, on the order of a tenth, of the rise in UK term premia since February 2022, and the new sales will add to gilt supply. The plan assumes a fixed intended pace of unwind, with a high bar for reconsideration, only if Bank Rate alone is insufficient to meet the inflation target or if markets are very distressed. The Bank will set aside a designated portion of the longest-dated gilts to back banknote issuance. Waiting to choose a number for active sales until the DMO's involvement was clear would allow faster balance sheet shrinkage, but withholding a number risked destabilising markets.
- Private sector regular AWE growth, 3m/y 2.9% (2026-01 3.3%)
- Average annual QT reduction £46bn
- Bank Rate 3.75%
Why it matters Routing APF sales through the DMO removes a standing seller from the market and hands the flow to the Treasury, so the long end of the curve now prices a fiscal decision as much as a monetary one.
The Governor and the Chancellor exchanged letters on 17 September 2026 updating how quantitative tightening will be implemented and agreeing a new strategy for backing banknotes, with the Bank rate held at 3.75% at the September meeting. The change is one of behaviour rather than of numbers: the framework governing how the Asset Purchase Facility is run has been rewritten, and the letters were published alongside the Governor's pooled broadcast interview. The terms agreed set the pace at which the Bank's gilt holdings run off, and therefore the supply the Debt Management Office must place with private buyers — the channel through which the decision reaches the long end of the curve.
CPI inflation in August 2026 sat more than a percentage point above the target, obliging the Governor and the Chancellor to exchange open letters on 17 September 2026, published with the September Monetary Policy Summary in which Bank Rate was held at 3.75%. The trigger is the remit itself: the deviation is measured against the target the MPC is bound to, not against any forecast. The letters put the overshoot on the record and tie the Committee's tolerance for above-target inflation to a public exchange with the Treasury, which is the document gilt investors read for how long the undershoot of the target will be allowed to persist.
Why it matters Bailey ties any cut to Middle East energy prices returning to pre-conflict levels, so UK mortgage pricing — already up 1% since February — stays tight regardless of what the Fed and ECB do.
Governor Andrew Bailey said rates were held on 17 September 2026 while the Federal Reserve and the European Central Bank raised rates the previous week, and that a cut would require an end to the Middle East conflict and energy prices back at pre-conflict levels. He put UK mortgage rates up by nearly 1% since the end of February, when the conflict began, calling it a substantial tightening of monetary conditions, and said the MPC did not discuss raising rates four times despite market bets on up to four hikes next year. The divergence is the point: with Bank Rate at 3.75% while the Fed and ECB tighten, the pass-through already delivered through mortgage pricing does part of the work, and the gilt curve carries the rest.
Why it matters The CNB holds its repo rate at 3.75% with the corridor unchanged, leaving Czech government paper to trade on the ECB's tightening rather than on any domestic signal.
The Bank Board left the two-week repo rate at 3.75%, the discount rate at 2.75% and the Lombard rate at 4.75%, with Governor Aleš Michl due to hold an afternoon press conference in Prague. The corridor is unchanged in all three of its rates, so the decision carries no signal about the next move beyond the press conference itself. For Czech government paper the relevant anchor is the repo rate at which the central bank absorbs liquidity, and holding it leaves the spread to euro area yields to be set by the ECB's tightening rather than by anything decided in Prague.
Also today
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The MPC set out a multi-year path to run its monetary policy gilt holdings to zero, with annual sales of £20bn alongside maturing gilts, and engaged HM Treasury and the Debt Management Office on a model in which the MPC's decision is implemented through APF sales to the Government. Under it, HMT would instruct the DMO to buy the APF gilts at market prices in a pre-defined, pre-announced manner at an annualised pace of £20bn, with sales concluding around the unwind of gilts held to maturity in 2034. The Bank will review progress before April 2027 and APF auctions pause in the meantime — a change of behaviour that removes a standing seller from the market and hands the flow to the DMO, against a total portfolio of £488.2bn.
- Gilts held to maturity (pre-2035) £221.7bn
- Gilts to be sold (2035-2049) £146.5bn
- Gilts held to back banknotes £120bn
Deep dives
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The ECB Wage Tracker's main indicator — negotiated wage growth with smoothed one-off payments — points to 2.7% in the first half of 2027, a slight acceleration from the 2.2% profile for 2026. The quarterly path is 2.7% in the first quarter of 2027 and 2.8% in the second, against 1.8% in the first quarter of 2026 and 1.9% in the second. The 2026 weakness is mechanical rather than behavioural: one-off payments originally made in the second half of 2024 drop out of the annual comparison, damping the smoothed series, and those effects fall out completely in the second half of 2026. That is why the tracker's unsmoothed variant fell to 2.6% in 2026 from 3% in 2025, while the variant excluding one-off payments sits at 2.6% for 2026 — the underlying negotiated trend is steadier than the headline swing suggests.
The method matters for how much weight the forward-looking numbers can carry. The tracker aggregates granular collective wage agreements from nine euro area countries in two steps: country indicators built with country-specific coverage, then combined into a euro area aggregate using time-varying weights from the distribution of compensation of employees in the national accounts. Four indicators are published, and the forward-looking component reflects only information currently available on ongoing collective agreements — it is explicitly not a forecast. Coverage is the binding constraint: the 2026 average rests on 46.9% of employees in participating countries, the first quarter of 2027 on 32.5%, and the second quarter of 2027 on 25.1%. In the second quarter of 2027, Germany's coverage is 28.8%, Greece's 13.1%, France's 10.3% and Spain's 8.7% — the signal leans heavily on the German sample.
The Bundesbank also cites a projection for euro area compensation per employee of 3.3% in 2026, a broader measure that includes bonuses and employer contributions and therefore sits above the negotiated-wage tracker. The counterpoints are structural: the tracker is subject to revisions, it does not exactly replicate the indicator for growth in negotiated wages, and forward-looking signals depend on which agreements are in the database at a given point in time — a particular problem around the turn of the year when many agreements are signed. The horizon itself is still short: it extends to the third quarter of 2027 with the November 2026 release and to full-year 2027 with the December 2026 release, and coverage should rise as new agreements are concluded.
For the Governing Council, the mechanism is a coverage-weighted signal rather than a forecast: a main indicator that steps up from the 2026 average to the first half of 2027, with the second quarter of 2027 at 2.8%, keeps negotiated wage pressure in the inflation assessment even as the sample behind that reading thins to 25.1% coverage. The revision risk is concentrated exactly where the signal is strongest — the sparse 2027 quarters, where German agreements dominate and where the December release will add the missing full-year contracts.
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The SNB's latest update to its GC Basket repo-eligible securities list shows a clear pattern: a wave of exclusions of USD-denominated supranational bonds on 2026-09-16, while new collateral was added across CHF, EUR, USD, GBP, NOK, SEK and DKK. The most prominent exclusion is a World Bank USD bond with an outstanding amount of $1.5bn, which was removed from the eligible set. This reduces the pool of high-quality liquid assets (HQLA) that SNB counterparties can pledge, particularly for USD-denominated supranational debt.
On the addition side, the SNB accepted a new Asian Development Bank EUR bond with an outstanding amount of €1.25bn, a Kommunalbanken A/S USD bond of $1bn, and a Kingdom of Norway NOK bond of NOK 10bn. These additions expand the eligible collateral set, but the simultaneous removal of USD supranationals suggests a deliberate shift in the SNB's collateral framework. The document also lists redemptions, including a German Federal Republic EUR bond of €19bn and a Kingdom of Sweden SEK bond of SEK 42.5bn, which naturally shrink the pool as bonds mature.
The SNB's criteria for HQLA classification are defined in the revised Liquidity Ordinance, and the SNB explicitly accepts no responsibility for the classification. This means the list is a mechanical application of regulatory standards, not a discretionary policy signal. The exclusion of USD supranationals may reflect changes in their HQLA status under the revised ordinance, or a reassessment of their liquidity in SNB repo operations.
For market participants, the practical effect is a narrower set of eligible collateral for SNB repos. Counterparties holding excluded USD supranational bonds will need to substitute them with other eligible assets, potentially increasing demand for the newly added securities and tightening repo conditions for the excluded names. The addition of new L1 and L2a collateral across multiple currencies partially offsets the reduction, but the net effect on the Swiss repo market depends on the relative sizes of the excluded and added bonds.
- Swiss Confederation new money market book claim CHF 476.5m
- Bond outstanding amount CHF 315m
- Bond outstanding amount CHF 444.75m
- Bond outstanding amount €1.09bn
- Bond outstanding amount €1.5bn
- Bond outstanding amount £2bn
In brief
Rates & Bonds 80 items, 45 listed
Central banks across continents repriced policy this week, with the Bank of Mongolia setting its policy rate at 12.5% and the National Bank of Ukraine moving its key policy rate to 16% and then to 16% a day later, while the Hong Kong Monetary Authority aligned its Base Rate at 4.25% with the Fed funds target range upper bound at 4%. The National Bank of Serbia reported the ECB deposit facility rate at 2.5%, Eurostat put euro area annual inflation at 3.2%, and Banco de España showed general government debt at 99.9% of GDP. Among the outliers, the Bank of Guyana auction yield came in at 1.1% against a Treasury bill issue size of GYD 3.1bn and an estimated face value of GYD 4bn, and the Bank of the Republic of Haiti recorded CPI at 17.5% y/y. The RBI's operations spanned a VRRR notified amount of ₹225,000 crore, an OMO sale aggregate of ₹25,000 crore, a notified amount of ₹50,000 crore and total accepted of ₹50,000 crore, with no partial acceptance at the cut-off rate.
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Equities & Sectors 2 items
Two releases point in opposite directions for the industrial and venture capital pipeline: Destatis reported German order backlog at 1.5% m/m for July, while KfW Bankengruppe set a WIN VC investment target of €25bn. Together they frame a manufacturing sector still working through existing orders against a state-backed push to seed new equity investment.
FX & Emerging Markets 17 items, 12 listed
Emerging-market currencies and external balances dominated this group, with the SNB quoting USD/CHF at CHF 0.83 and JPY/CHF at CHF 0.53, NBP posting USD/PLN at 3.803 PLN/USD and EUR/PLN bid at PLN 4.31, and the Central Bank of Myanmar reporting a weighted average rate of 3,939.76 MMK/USD MMK per USD. Albania's export coverage of imports stood at 27.19% with exports at 1.6% y/y, while Serbia's secondary income balance was €626m monthly and the Maldives recorded monthly GDP growth of −2.8% y/y. The Bank of Jamaica ran FX sale operations of $40m and $40m, and the Bank of Haiti's governor noted eight consecutive years of a programme review milestone.
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Regulation & Structure 48 items, 28 listed
Regulators advanced structural reforms and enforcement across a wide front, with the SEC granting temporary conditional exemptive relief to Tokenized Securities Venues from the exchange definition, the CFTC offering no-action relief from introducing-broker registration under specified conditions, and the FCA opening a money-laundering investigation into Euro Exchange Securities UK Ltd. The Central Bank of Ireland put additional annual investment needs by 2030 at €750bn, HMRC set the annual cash ISA subscription limit at £12k from April 2027 and the global minimum corporate tax rate at 15%, while BaFin counted 20 legislative proposals implemented or in process and the Bank of Korea reported a net-settlement collateral ratio of 100%. Enforcement actions included CVM fines in the Banco Master case running into the hundreds of millions of reais and a settlement payment of R$180k, alongside RBI extending directions against two co-operative banks and four companies exiting the NBFC business. The FCA targeted 3 premises and estimated annual money laundering at £100bn, and Taiwan's Financial Supervisory Commission recorded a convertible bond issue size of TWD 700m.
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No direct market impact 59 items, 33 listed
Statistical agencies released a broad sweep of demographic, labour and sectoral indicators with no direct market impact, including Australian population growth at 1.4% y/y, Maldives monthly GDP growth at 3.2% and 3.1%, and Netherlands employment of 9.62 million working-age people against 408,000 unemployed. Kazakhstan reported construction work at 15.6% y/y, KZT 6.09trn total and 115.6% y/y, while Croatia registered 2,058,313 passenger cars and Brazil's forestry production value reached R$44.3bn. Albania's visitor growth was 15.2% y/y, Italy's house price index rose 4% y/y, and Greece recorded museum receipts at 8.6% y/y with domestic material consumption at 116.33 million tonnes. Moldova's inflation target stood at 5% and 5%, Fiji's net profit was FJD 120.6m, and Taiwan's SME loan balance changed TWD 132.7bn m/m.