Bank of England Raises Rates to 4% in First Hike Since 2023, Sees Inflation Near 5%

Threadneedle Street outside the Bank of England in the City of London (file photo). Photo: mattbuck (category) / Wikimedia Commons (CC BY-SA 4.0).

The Bank of England raised its benchmark interest rate on Thursday for the first time since August 2023, lifting Bank Rate a quarter point to 4% from 3.75% and saying at least one more increase is likely if the U.S.-Iran conflict keeps energy prices high, Reuters reported. The Monetary Policy Committee voted 8-1, and the lone dissenter wanted a bigger move.

What the Bank of England decided

The increase ended a run of six straight holds; the rate had sat at 3.75% since December 2025, Unbiased noted. Markets had treated the move as close to certain before the announcement, according to Reuters. The surprise was in the vote: external member Catherine Mann backed a half-point rise to 4.25%, while a Reuters poll had expected any dissent to favor leaving rates unchanged.

In the minutes, Mann pointed to the risk that inflation could accelerate in a non-linear way and undermine confidence in the central bank. Deputy Governor Clare Lombardelli said another hike will likely be needed soon, and Megan Greene and Huw Pill also argued for further tightening. Swati Dhingra and Alan Taylor, who had been reluctant to raise rates, said they want stronger evidence of so-called second-round effects, such as wages chasing prices, before supporting more increases.

The decision is one of the biggest central bank moves of the week in global business news, arriving the same day TBR reported that Bank of Japan minutes showed members discussing faster hikes.

Why rates went up: energy prices and the Iran war

The Bank said months of high energy prices had built up enough inflation pressure to require action now, even though it saw little sign of faster price growth outside energy-affected sectors, Reuters reported. Governor Andrew Bailey said there was “enough inflationary pressure in the pipeline” to justify the move, HNGN reported.

UK consumer price inflation rose to 3.5% in September from 3.1% in August, mainly because of energy costs, against the Bank’s 2% target. In its central forecast, the Bank now sees inflation peaking at an average of 4.8% in the second quarter of 2027 and not returning to 2% until the third quarter of 2028, about six months later than it projected in July. In a worse case where oil peaks near $130 a barrel, compared with about $100 now, inflation would reach 6.2% in the third quarter of 2027.

Households also face a higher energy bill: the regulator Ofgem’s price cap is expected to rise from £1,720 to £2,150 in January, according to HNGN. Oil prices have swung sharply this week; TBR covered the drop in crude as traders weighed U.S.-Iran talks.

How many more hikes?

Bailey tried to cool expectations of a long tightening run, saying the move “shouldn’t be seen as the first in an inevitable long sequence of hikes”. He added that another increase looks likely unless the Middle East conflict is resolved. Financial markets are pricing three more quarter-point increases in 2027, more than most economists expect; Bailey said markets are pricing tail risks of a sharp energy spike.

Some economists see a lower peak. David Rees, chief economist at Schroders, said the Bank had been “reluctantly dragged into a global hiking cycle” and expects rates to top out at 4.25%. Ed Hutchings of Aviva Investors called the decision fully expected and said further hikes look increasingly likely.

The Bank also raised its growth forecasts to 1.6% for this year and 1.3% for next year, partly reflecting spending tied to artificial intelligence and a small, temporary lift from the recent budget. It still expects real household income from work to fall this year and next. The hike complicates the agenda of Prime Minister Andy Burnham, who has made easing cost-of-living pressure a priority, Reuters noted. The next decision is due Dec. 17.

Market reaction and what it means for borrowers

Two-year gilt yields rose about 2 basis points to 4.76% after the announcement, sterling edged up to $1.3477, and London’s FTSE index was up 0.7%, Reuters reported in a market roundup.

For UK borrowers on variable or tracker mortgages, a quarter-point rise typically adds roughly £25 to £30 a month to a £200,000 repayment loan within one to two months, Unbiased said. Fixed-rate payments do not change until a deal ends.

The Bank of England’s move contrasts with the Federal Reserve, which held U.S. rates at 3.75% to 4% on Oct. 28 after a quarter-point increase in September; its next decision is Dec. 9, according to TBR’s Federal Reserve tracker. Broader U.S. data is on the US economy tracker.

Market figures are as reported Thursday, Nov. 5, 2026, and can change. This article is for information only and is not investment advice.

Sources

• Reuters via Global Banking & Finance Review: Bank of England raises rates for first time since 2023
• Reuters via Global Banking & Finance Review: Instant View: Bank of England delivers first rate hike in three years, gilt yields rise
• HNGN: Bank of England Hikes Rate to 4%, Warns Inflation Near 5%
• Unbiased: Base rate rises to 4%: what the Bank of England’s first hike in 3 years means for your money
• Trading Economics: United Kingdom Interest Rate