Bank of England keeps interest rate at 4%

Bank of England keeps interest rate at 4%

18 Sep 2025

Simeon Willis, Chief Investment Officer, XPS Group commented: “There was no expectation of a rate cut today, with UK inflation still well above target and set to rise further. This contrasts with the US which saw a 0.25% interest rate cut yesterday, where inflation is almost 1% lower. For pension schemes, the impact will be minimal, as long-dated gilt yields and inflation expectations are moving somewhat independently of short-term rate decisions and inflation prints.

Defined Benefit pension schemes have generally been benefiting from a wave of rising long dated gilt yields, needed to attract new gilt investors given that pension scheme demand for new issuance has likely passed its peak. However the dynamics of the gilt market has varied considerably across different maturities.

Short end yields have been tethered by the Bank rate, whereas long dated yields reached their highest levels this century in early September with 20 years gilt yield reaching 5.7%, and are currently sitting just under this recent high watermark. In further contrast, at the hyper long end beyond 50 years, there is a rump of pension benefits that fall so far into the future that there isn’t even a gilt that can be bought to match them. This combined with a market expectation for reduced future long dated issuance, has propagated demand for the longest maturity gilts available which remain relatively expensive compared to the rest of the gilt market.

Overall schemes are benefiting from higher funding levels, but volatile gilt dynamics make managing liabilities a choppy ride.”