The Bank of England has raised interest rates for the first time in more than three years, lifting Bank Rate to 4% from 3.75% as it moves to contain inflation pushed higher by soaring energy costs.
The Monetary Policy Committee voted 8-1 in favour of the quarter-point increase at its meeting ending on 4 November, with the decision announced at midday on Thursday. It is the first rise in borrowing costs since August 2023, and the first change in rates since a cut last December.
Governor Andrew Bailey said the increase should not be seen as the start of an inevitable run of hikes — but warned it was unlikely to be the last if the conflict in the Middle East continues. “Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes. But unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase,” he said.
The dissent on the nine-member committee came not from a policymaker wanting to hold rates steady, as economists polled by Reuters had expected, but from one wanting a bigger move. Catherine Mann, who has argued the Bank was slow to reassure markets it had a grip on inflation, voted for a half-point rise to 4.25%, warning of “non-linear inflation risks” now that consumer price inflation has reached 3.5%.
The Bank now expects inflation to peak at an average of 4.8% in the second quarter of next year — more than double its 2% target — and not to return to target until the third quarter of 2028, six months later than it forecast in July. In a more adverse scenario, in which oil prices peak at around $130 a barrel against about $100 now, inflation would reach 6.2% in the third quarter of 2027.
The central bank also upgraded its growth forecasts, expecting the economy to expand by 1.6% this year and 1.3% next year, stronger than the government’s Office for Budget Responsibility predicted last week. It attributed some of the strength to spending on artificial intelligence and a small, temporary boost from Chancellor John Healey’s annual budget.
But after inflation and taxes, British households’ income from work is set to fall both this year and next, the Bank said. The budget would lower inflation by 0.25 percentage points at its peak, it added, but raise it later once temporary cost-of-living assistance expires.
The decision puts the Bank on a path its main peers have already taken. The Federal Reserve and the European Central Bank have both raised rates this year as energy prices climb, and financial markets are pricing in at least three further quarter-point rises in Britain next year — more than most economists think is likely. Bailey said that gap reflected markets pricing in the risk of a sharp further rise in energy prices, rather than the single most likely path.
Deputy Governor Clare Lombardelli said a further hike was likely to be needed in the near term, and Chief Economist Huw Pill and external member Megan Greene also spoke of the need for further tightening. Two members who had previously resisted higher rates, Swati Dhingra and Alan Taylor, said they would need stronger evidence that higher energy costs were feeding through into wages and prices before backing more tightening.
The Bank’s next rate decision is due on 17 December.
Sources: Reuters, “Bank of England raises rates for first time since 2023, says more may come” (https://www.reuters.com/business/bank-england-raises-rates-first-time-since-2023-says-more-may-come-2026-11-05/); Bank of England, “Bank rate increased to 4% — November 2026 Monetary Policy Summary and Minutes” (https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2026/november-2026).
