Bank of England raises rates to 4% in first hike since 2023, warns more may follow
Governor Andrew Bailey said the rise is unlikely to be the last unless the conflict in the Middle East is resolved.
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The Bank of England raised its Bank Rate by a quarter point to 4% on Thursday, 5 November 2026, its first increase since August 2023, and warned that at least one more rise was likely if the US-Iran conflict continues. The Monetary Policy Committee voted 8-1 for the move from 3.75%.
Why the Bank of England raised Bank Rate now
The bank expects British inflation to climb to around 5% in the middle of next year, more than double its 2% target, Reuters reported. Months of high energy prices since the war with Iran began in February have built up pressure that policymakers said needed a response now, even though borrowing will cost more for businesses and many homeowners.
Until this week the bank had held back while the US Federal Reserve and the European Central Bank raised rates, arguing that its higher starting point made a rise less urgent.
Key numbers
- 4%: the new Bank Rate, up from 3.75% (Xinhua).
- 8-1: the committee vote. The one dissenter wanted a bigger rise, to 4.25%.
- 4.8%: the bank’s forecast peak for inflation, in the second quarter of 2027.
- 6.2%: inflation in a worse case where oil peaks near $130 a barrel, against about $100 now.
- 2028: the third quarter in which inflation is forecast to return to 2%.
What Andrew Bailey and Catherine Mann said
“Today’s increase should not be seen as the first in an inevitable long sequence of hikes. That is not inevitable. But unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase,” Governor Andrew Bailey told reporters.
Bailey called the sharp fall in oil prices over the previous two days encouraging, but said earlier falls had proved false dawns and that a further rise was likely to be needed even if oil stayed at current levels.
Committee member Catherine Mann voted for a half-point rise. In the minutes she warned of the risk that consumer price inflation of 3.5% in September could trigger a loss of confidence in the bank. Deputy Governor Clare Lombardelli and Chief Economist Huw Pill also said a further rise was likely soon. Swati Dhingra and Alan Taylor said they would need stronger evidence before backing more increases.
Background: growth up, household incomes down
The bank raised its growth forecasts to 1.6% this year and 1.3% next year, citing strong recent data and spending on artificial intelligence. But it said the average household’s income from work, after inflation and taxes, will fall in both years.
Sterling rose against the dollar after the decision, and two-year government bond yields climbed as traders added bets on another rise in December.
What happens next
The next decision is due in December. Andrew Goodwin, chief UK economist at Oxford Economics, called it a coin flip that will depend on oil and gas prices. For Indian students, workers and families with links to Britain, a firmer pound raises the rupee cost of fees and remittances. More business news is in our Business and Economy section and on the World edition home.
The Bank of England joins the US Federal Reserve and the European Central Bank in raising rates against energy-driven inflation, a sign that the Iran war is now pushing up borrowing costs across the rich world. For India, higher rates abroad tend to strengthen those currencies against the rupee and can pull foreign money out of Indian markets.