The Bank of England Raised Rates to 4 Per Cent, Its First Increase in 1,190 Days. Its Staff Expect Inflation Near 5 Per Cent by the Middle of Next Year.

The Bank of England raised its main interest rate by a quarter of a percentage point to 4 per cent on Thursday, the first increase in Bank Rate since August 2023. The Monetary Policy Committee voted 8 to 1. The dissenter, Catherine Mann, wanted a half-point rise to 4.25 per cent.

The reason is energy. In the Bank's Monetary Policy Summary, the committee said energy prices had kept climbing from an already high level and that "the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate." The rise follows the Federal Reserve's decision in late October to hold, when two officials voted for an increase.

Why did the Bank raise rates now?

Because its forecast for inflation jumped. Brent crude and UK natural gas futures averaged $108 a barrel and 216 pence a therm over the period the Bank used, 38 and 81 per cent higher than when it published its July forecasts, according to the minutes. Bank staff now expect CPI inflation to reach around 4.5 per cent in the first quarter of 2027 and around 5 per cent in the second, about 1.25 points higher than in July.

Inflation was already rising. The Office for National Statistics said CPI rose 3.5 per cent in the year to September, up from 3.1 per cent in August. Motor fuel prices were up 29.8 per cent on the year, and transport alone added 0.94 points to the rate. Core inflation, which leaves out energy, food, alcohol and tobacco, was 2.8 per cent, and services inflation 3.7 per cent.

The committee's worry is that a price shock turns into a wage and price spiral. The minutes say members saw a greater risk of these second-round effects than in September, because households and firms are paying close attention to prices. Megan Greene, an external member, put underlying wage growth at around 3.5 per cent, above what is consistent with the target. Activity has held up. "GDP growth has surprised to the upside," she wrote.

How far has the Bank turned?

One step of six. The Bank cut Bank Rate six times between August 2024 and December 2025, from 5.25 per cent to 3.75 per cent, according to its Bank Rate history. Thursday's rise takes it back to where it stood after the August 2025 cut.

Bank Rate since the last peak (this publication's table from Bank of England data)

By our count, the rate stood at 3.75 per cent for 322 days. The gap since the last rise is 1,190 days.

With inflation at 3.5 per cent, a 4 per cent Bank Rate is half a point above September's inflation rate. If inflation reaches the 5 per cent the Bank's staff expect by mid-2027 and the rate stays at 4 per cent, it would be a point below it, by our arithmetic. That is the arithmetic behind Ms. Mann's vote. She wrote that "the economy has crossed the estimated statistical threshold into a high inflation-tight labour market regime", and that UK inflation has averaged 4.7 per cent over five years above target.

What does it mean for borrowers?

Much of it has already arrived. Markets had expected the move. According to the minutes, the middle of market expectations already had Bank Rate at 4 per cent this month and 4.25 per cent in February, and two-year fixed mortgage rates were up almost half a percentage point since early September. Tracker mortgages, which follow Bank Rate, move with it.

The Budget offers some offset. The Bank expects its measures to take about a quarter of a point off CPI inflation by the second quarter of 2027.

What to watch next

The committee said "monetary policy is not on a pre-set path." Its next decision is on 17 December. Before then come October's inflation figures and the labour market data. Market pricing already points to a further rise to 4.25 per cent by February. Whether that happens depends mostly on something the Bank does not control: the price of oil and gas. Ms. Mann noted that even her 4.9 per cent inflation projection assumes oil and gas prices fall substantially.

The decision, the vote, the energy price figures, the inflation projections, the market rate path, the mortgage rate move, the Budget effect and the statements by Andrew Bailey, Megan Greene, Dave Ramsden and Catherine Mann are from the Bank of England's Monetary Policy Summary and minutes for November 2026, published on 5 November 2026. Past Bank Rate changes are from the Bank of England's official Bank Rate history. September and August inflation figures, motor fuel and core and services inflation are from the Office for National Statistics consumer price inflation bulletin of 21 October 2026. Day counts, the rate table and the real-rate comparison are this publication's arithmetic. The analysis is our own.

Topics worldinterest ratesmonetary policyenergy pricesUnited Kingdom