The Bank of England's Monetary Policy Committee (MPC) is scheduled to announce its next decision on UK interest rates on 17 September. This announcement will also detail the amount of government bond sales, known as quantitative tightening (QT), to be pursued over the subsequent 12 months.
The current rise in UK yields presents a significant challenge for the Bank's policymakers. Research indicates that QT policies can increase UK yields by up to 0.4 percentage points, while also reducing UK inflation by as much as 1.4 percentage points.
Given that QT policies contribute to increased UK yields beyond the impact of global market volatility, the MPC may consider slowing the current annual pace of £70bn in government bond sales. Such a move could ease pressure on UK borrowing costs but might also hinder a swift return of UK inflation to the Bank's 2% target.