It is decision week for the Bank of England, one of eight weeks in the year when interest rates might go up or down and other changes are announced by its monetary policy committee (MPC). If you think that is too many, let me remind you that from the start of Bank independence in 1997 until less than 10 years ago there were 12 such decisions each year.

If circumstances arise, the MPC can meet and announce decisions more often, though the last time this happened was in March 2020, the start of the pandemic.

One aspect of this week’s decision looks clear-cut. There will not be a reduction in interest rates, or a hike. Bank Rate should be left on hold at 4 per cent. The closeness of last month’s vote, a 5-4 verdict, to trim the rate from 4.25 per cent, signalled a much more cautious approach from the MPC.

The “stickiness” of inflation, with the latest rate at 3.8 per cent as I write this, but with the next reading looming — and perhaps already out by the time you read this — has members of the MPC worried. So do doubts about whether pay growth will slow enough to be consistent with the official 2 per cent inflation target.

The latest labour market figures, which suggest that the decline in the number of people on payrolls has slowed to a trickle, were not weak enough to force the Bank’s hand. It should be a comfortable hold.

Indeed, it is not just this week’s decision which has been affected. The next one will be in early November and many economists who previously expected the Bank to continue with its “quarter every quarter” programme of rate cuts, now think it will not cut again this year. If so, the final two MPC meetings of the year (there’s another in December) could be dull, though remember that the Bank once went for over seven years, from March 2009 to August 2016, without changing rates. Fortunes were made and lost, empires rose and fell, new planets were discovered, yet Bank Rate stayed at 0.5 per cent.

While a no-change seems guaranteed at this week’s meeting, it is not without importance. This is because of something I have left until the later part of this column, because I know many readers find it difficult; our old friend quantitative tightening (QT).

To understand QT, you first must know about quantitative easing (QE), which is what the Bank and other central banks resorted to during the 2008-09 financial crisis when they decided they could not reduce interest rates further and still needed to apply a monetary stimulus to recession-hit economies. The Bank started QE in March 2009, alongside the rate reduction to 0.5 per cent.

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They did so by creating “money”, in the Bank’s case bank reserves, and used it to purchase assets, mainly UK government bonds (gilts) but also corporate bonds. The idea was that holders of those bonds, after selling to the Bank, would use the proceeds to invest in other assets, so stimulating the economy.

QE eventually amounted to a massive £875 billion, and the Bank found itself holding a huge proportion of gilts in issue. QT is the opposite process, that of running down its bond holdings, and it has gone quite a long way. The Bank has got rid of all its corporate bonds and early last month the MPC’s minutes recorded that it had brought down its gilt holdings to £586 billion. It has since chopped nearly £30 billion more off the total, to some £558 billion.

The question is what it does next, and context is all important. You may have noticed that there has not been much reporting of the high costs of long-dated government borrowing in recent days. This is because the news has been a little better, and the apparent fiscal crisis which pushed the yield on 30-year gilts to a 27-year high, has subsided a little. This has nothing to do with anything that has happened here and indeed the government has sunk deeper into the mire. It has everything to do with financial markets being more confident of American interest rate cuts, starting imminently, helping government bond markets globally.

Though long gilt yields have eased a little, they are still too high for comfort for a government which has a lot of debt, and the Bank will not want to provoke the markets, which is why this week’s decision on QT is important. It will set out how much it proposes to do over the next 12 months.

This is the bit a lot of people stumble over. There are two types of QT. Passive QT is when the Bank simply allows the gilts it has in its portfolio to mature, as they reach the end of their term, and does not reinvest the proceeds. Active QT is when, on top of that, it sells some of the gilts it has back to the markets. The Bank is the only major central bank to do the latter.

This was not much of a problem over the past 12 months, because £87 billion of the Bank’s gilts were maturing, so only £13 billion of active sales were needed to achieve £100 billion. But over the next 12 months only £49 billion will be maturing, implying £51 billion of active sales, four times the level over the past 12 months. At a time of strain in the gilt market, that would look risky.

So, the Bank can and should ease the pace of QT. During a Mouradian Foundation webinar this week former MPC members Sir Charlie Bean and Michael Saunders suggested a £70 billion to 75 billion figure for the next 12 months, which is roughly what markets expect. The Bank could go further and suspend active sales completely, but that would be tantamount to admitting that they were a mistake. A compromise figure should help further calm nerves.

David Smith is the economics editor of The Sunday Times