Key points
- The Bank of England's Monetary Policy Committee voted 8–1 to raise Bank Rate by 0.25 percentage points to 4%, the Bank announced on Thursday — its first increase since August 2023.
- The one dissenter, Catherine Mann, voted for a bigger rise, to 4.25%, warning of "non-linear inflation risks" if high prices become embedded in wages and prices.
- UK consumer price inflation reached 3.5% in September, and the Bank expects it to rise to around 5% by the middle of next year — not returning to its 2% target until the third quarter of 2028.
- Governor Andrew Bailey said the rise "shouldn't be seen as the first in an inevitable long sequence of hikes", but added that unless the conflict in the Middle East is resolved, "neither does it seem likely to be the last increase".
- The Bank raised its growth forecasts to 1.6% this year and 1.3% next year, stronger than the government's budget watchdog had predicted last week, Reuters reported.
The Bank of England has raised interest rates for the first time in more than three years, acting against an inflation outlook it says has worsened as the war in the Middle East keeps energy prices high. The quarter-point move, announced in London on Thursday, was widely expected by investors, who had been near-certain the Bank would act this month, Reuters reported. Until now, the Bank had not followed the US Federal Reserve, the European Central Bank and other central banks in raising rates in response to inflation pressures from the war. Read more: ECB holds rates at 2.5% as Lagarde announces she will step down in February
The key figures
| Measure | Figure | Source |
|---|---|---|
| Bank Rate after the decision | 4%, up 25 basis points from 3.75% | Bank of England |
| Monetary Policy Committee vote | 8–1; Catherine Mann voted for 4.25% | Bank of England |
| Previous rate increase | August 2023 | Reuters |
| Consumer price inflation, September | 3.5% | Bank of England |
| Inflation expected to peak | Around 5% by the middle of next year | Bank of England |
| Inflation back to the 2% target | Third quarter of 2028 | Reuters |
| Growth forecast | 1.6% in 2026; 1.3% in 2027 | Reuters |
| Brent crude, 15 working days to 27 October | $108 a barrel on average, 38% above July | Bank of England |
| UK natural gas, same period | 216 pence a therm, 81% above July | Bank of England |
| Adverse scenario (oil around $130) | Inflation of 6.2% in the third quarter of 2027 | Reuters |
| Two-year mortgage rates | Up nearly 50 basis points since early September | Bank of England |
| Next rate decision | Committee meeting ends 16 December 2026 | Bank of England |
Why the Bank moved now
The conflict in the Middle East is now in its ninth month, the Bank said, and global energy prices have continued to rise from an already elevated level. Over the 15 working days to 27 October, Brent crude averaged $108 a barrel and UK natural gas 216 pence a therm — 38% and 81% higher than at the time of the Bank's July report. Direct energy effects contributed around one percentage point of September's 3.5% inflation, most of it driven by fuel prices, according to the Bank's minutes.
The danger, as the Bank frames it, is not the energy bill alone but what follows it. So far there has been little sign of higher energy costs feeding into other prices and wages, the Bank said — but the amount of inflation pressure building up from months of high energy prices is now enough to warrant a rise. Firms have mostly absorbed higher costs by cutting into profit margins, the Bank noted, yet those buffers can only be temporary, and the longer energy prices stay high, the more likely the costs pass through to consumers.
Growth has also proved stronger than the Bank expected. Activity data in recent months have generally beaten forecasts, the Bank said, helped by spending on artificial intelligence and a small, temporary boost from finance minister John Healey's annual budget last week — which is why it raised its growth forecasts to 1.6% this year and 1.3% next, notably stronger than the government's Office for Budget Responsibility predicted last week, Reuters reported. At the same time, the Bank said British households' income from work, after inflation and taxes, was set to fall both this year and next.
Markets reacted at once: sterling strengthened against the US dollar after the decision, and yields on two-year British government bonds — which move with expectations of future rate rises — rose by four basis points, Reuters reported. Benchmark two-year mortgage rates had already risen by nearly 50 basis points since the beginning of September, the Bank said.
The dissent — and the case for a bigger rise
The decision was not one-sided. Catherine Mann, the only member to vote against the quarter-point rise, wanted a half-point increase to 4.25%. In the published minutes she said she was concerned about "non-linear inflation risks": with inflation at 3.5% in September, she judged the economy had crossed a threshold into a regime where households and firms react more sharply to high prices, and where above-target inflation could become embedded in wage demands in 2027. Her own projection put inflation at 4.9% by mid-2027.
Among the eight who backed the smaller rise, the emphasis was on insurance rather than the start of a campaign. Alan Taylor, an external member of the committee, called it a "risk-management 'one-for-now' insurance hike", adding that "this is not the start of a hiking cycle" and that policy was not on a pre-set path. Governor Bailey said he could "see the argument for a further increase in rates" if no news softens the inflation risks, while Deputy Governor Clare Lombardelli said a further rise was likely to be needed in the near term. Chief Economist Huw Pill and external member Megan Greene likewise spoke of further tightening ahead.
Not everyone on the committee was convinced more rises will follow. Swati Dhingra and Alan Taylor — who had previously been reluctant to raise rates — said they would need stronger evidence of second-round effects, of energy costs spreading into wages and prices across the economy, before backing further tightening, Reuters reported. Financial markets, meanwhile, have priced in three quarter-point rate rises for 2027, more than most economists think is likely — a gap Bailey put down to markets pricing in the tail risk of a sharp further rise in energy prices.
What happens next
The Bank's next decision comes in December: the committee's meeting ends on 16 December, with its minutes published the following day. Until then, the Bank said, it will watch how pay, pricing behaviour and spare capacity in the economy develop — and whether the energy shock keeps feeding through. If the conflict in the Middle East is resolved, the pressure on prices should ease; in the Bank's more adverse scenario, with oil peaking at around $130 a barrel against around $100 now, inflation would reach 6.2% in the third quarter of 2027. Europe Unfolded will report the December decision when it is announced.
Updates & corrections
Published 5 November 2026.
No updates or corrections have been made to this article since publication.
Sources
- Bank of England, Monetary Policy Summary and Minutes, November 2026, on the 8–1 vote to raise Bank Rate to 4%, Catherine Mann's vote for 4.25%, CPI inflation of 3.5% in September rising to around 5% by mid-2027, Brent crude at $108 a barrel and UK gas at 216 pence a therm, direct energy effects of around one percentage point, two-year mortgage rates up nearly 50 basis points since early September, the Budget's effect on inflation, and the December meeting dates, and on the published views of Bailey, Lombardelli, Pill, Greene, Dhingra, Taylor and Mann: bankofengland.co.uk
- Reuters, "Bank of England raises rates for first time since 2023, says more may come", 5 November 2026, on the first increase since August 2023, Governor Bailey's remarks, the growth upgrade to 1.6% and 1.3%, inflation returning to 2% only in the third quarter of 2028, households' real income from work falling this year and next, the sterling and gilt market reaction, financial markets pricing three quarter-point rises in 2027, and Dhingra and Taylor seeking stronger evidence before further tightening: reuters.com
- Reuters, "Bank of England policymakers set out views on rates outlook", 5 November 2026, on the published views of individual Monetary Policy Committee members, including Lombardelli, Pill, Greene and Mann: reuters.com