By Ogundana Boluwatife
The Bank of England has raised its benchmark interest rate to 4 per cent, marking its first increase in more than three years, as policymakers warned that rising energy costs could push UK inflation close to 5 per cent by the middle of 2027.
The Monetary Policy Committee (MPC) voted 8–1 on November 4 to increase the Bank Rate by 0.25 percentage points from 3.75 per cent. One member, Catherine Mann, preferred a larger increase of 0.5 percentage points to 4.25 per cent.
The decision, announced on November 5, is the Bank’s first interest rate increase since August 2023. It reflects growing concerns that prolonged geopolitical tensions and higher global energy prices could make inflation more persistent.
According to the Bank’s November monetary policy report, UK consumer price inflation rose to 3.5 per cent in September. Policymakers now expect inflation to approach 5 per cent by the middle of 2027, driven largely by the impact of higher energy prices.
The Bank said the conflict in the Middle East had continued to push global energy prices higher, adding to pressures on households and businesses. It warned that these costs could gradually spread beyond energy bills if companies pass higher operating expenses on to consumers.
Although policymakers said there was limited evidence of significant second-round effects on wages and other prices, they considered the risk sufficient to justify tighter monetary policy.
The MPC also noted that economic activity had been stronger than expected in recent months, while the labour market appeared to be stabilising. These developments added to the case for raising borrowing costs.
The rate increase is expected to affect households and businesses through higher borrowing costs, including mortgages, loans and other forms of credit. It could also encourage saving by improving returns on some deposit products.
However, the Bank acknowledged the uncertainty surrounding the economic outlook, particularly the duration of the energy price shock and its wider impact on inflation.
The committee said future interest rate decisions would depend on incoming evidence, including wage growth, business pricing behaviour and the extent to which higher energy costs feed into other parts of the economy.
The Bank also stressed that monetary policy was not on a predetermined path, indicating that further increases would depend on how inflation develops.
The latest decision highlights the challenge facing policymakers as they attempt to contain rising prices without placing excessive pressure on households, businesses and economic growth.
