Bank of England raises rates to 4%, first hike since 2023

The Bank of England raised Bank Rate by a quarter point to 4% from 3.75% on Thursday, November 5. It was the central bank's first increase since August 2023, made as the US-Iran war pushes up energy costs and inflation. The Monetary Policy Committee voted 8–1 for the move, and Catherine Mann dissented in favor of a larger half-point rise to 4.25%, according to the Bank's minutes.bankofengland.co.uk

The vote was more hawkish than economists had expected. A Reuters poll had pointed to a 7–2 split, with external members Alan Taylor and Swati Dhingra seen as most likely to vote to hold. Both backed the hike. The Bank still signaled it may not tighten as hard as many investors had expected, The Wall Street Journal News Corp ↘ 11.26% reported.reuters.com+2

Inflation forecast near 5%

UK consumer price inflation rose to 3.5% in September, and the Bank now expects it to reach about 5% by mid-2027. Direct energy effects contributed about 1 percentage point of September's rate, the minutes said. The committee said there was still "limited evidence" of knock-on effects on wages and other prices. Even so, it judged that "the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase," and noted that economic activity had been stronger than expected. It also said policy "is not on a pre-set path."bankofengland.co.uk

September's reading was well above the Bank's July forecast of 3%, Reuters reported. Higher petrol and diesel prices were the main cause, according to the BBC.bbc.com+1

Split signals on what comes next

Policymakers gave mixed guidance. Governor Andrew Bailey said that without news that eases the inflation risks, "I can see the argument for a further increase in rates," followed by a more conditional approach. Taylor called the move a "'one-for-now' insurance hike" and stressed it "is not the start of a hiking cycle," the Bank's published statements show.bankofengland.co.uk

Before the decision, markets were pricing at least three more quarter-point rises in 2027, Reuters reported. Brent crude then fell about 8% on Wednesday after Democrats swept the US midterm elections, which raised hopes of a quicker end to the war. Société Générale's Kenneth Broux said cheaper oil gave Bailey room to lean against those bets, Pound Sterling Live reported. The Bank's forecasts used energy prices from before that drop. The committee's next decision is due on December 17.poundsterlinglive.com+1

Impact on households

The hike takes effect right away for about 510,000 tracker-mortgage holders. A typical tracker loan will cost about £31 more a month, based on UK Finance calculations cited by the BBC. As of November 4, the average two-year fixed mortgage rate was 5.96%, according to Moneyfacts, and savers could see better returns.bbc.com

In his statement, Mann argued that "from a risk management and credibility perspective, a 50-basis point hike in Bank Rate is 'good policy.'"