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Bank of England raises rates to 4% as energy prices push inflation up

Bank of England raises rates to 4% as energy prices push inflation up

Money Moves

First rate increase since 2023, as Middle East war drives oil above $100 a barrel

Today: Bank raises rate to 4%

Overview

Updated 54 minutes ago

The Bank of England raised its benchmark interest rate to 4% on Thursday, up from 3.75%, the first increase since August 2023. Eight of the nine Monetary Policy Committee members voted for the quarter-point rise; the ninth wanted a half-point.

The trigger is energy. War in the Middle East has disrupted oil and gas shipments through the Strait of Hormuz, pushing crude persistently above $100 a barrel. UK inflation hit 3.5% in September and the Bank expects it to reach about 5% by mid-2027. The hike is meant to stop those energy costs from spreading into wages and prices across the economy.

Why it matters

About 510,000 tracker mortgage holders will pay roughly £31 more a month, and variable-rate borrowers face similar increases.

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Key Indicators

4%
Bank of England base rate
Raised from 3.75% on 5 November 2026, the first increase since August 2023.
3.5%
UK inflation, September 2026
Consumer prices index, up from 2.6% in June 2026.
~5%
Expected inflation, mid-2027
Bank of England forecast, driven by elevated energy costs.
8-1
MPC vote
Eight members backed the quarter-point rise; one preferred a half-point.
510,000
Tracker mortgage holders affected
UK Finance estimate of borrowers facing higher repayments.
£31
Monthly repayment jump for tracker holders
Average increase per UK Finance, following the rate rise.

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People Involved

Andrew Bailey
Andrew Bailey
Governor, Bank of England
Leading the resumption of rate hikes
CM
Catherine Mann
External member, Monetary Policy Committee
Voted for a half-point increase

Organizations Involved

Bank of England
Bank of England
Central bank
Raised base rate to 4%

The UK's central bank, which sets the base rate that anchors borrowing and savings costs across the economy.
Monetary Policy Committee (MPC)
Monetary Policy Committee (MPC)
Rate-setting committee
Voted 8-1 to raise rates

The nine-member body that sets the UK base rate roughly every six weeks.
UK Finance
UK Finance
Trade association
Estimated mortgage impact of the hike

The trade association for UK banks and lenders, which estimated the repayment impact on tracker mortgage holders.

Timeline

December 2021 November 2026

7 events Latest: Today
Tap a bar to jump to that date

  1. Bank raises rate to 4%

    Today Policy

    The committee votes 8-1 for the first increase since 2023, citing energy-driven inflation.

  2. Inflation climbs to 3.5%

    Data

    Rising energy costs push inflation well above the 2% target.

  3. Inflation bottoms at 2.6%

    Data

    Consumer price inflation hits its recent low before the war-driven energy surge.

  4. Base rate reaches 3.75%

    Policy

    Cuts bring the rate to its low point before the energy shock.

  5. Rate cuts begin

    Policy

    With inflation easing, the Bank starts reducing rates from 5.25%.

  6. Last rate increase before the pause

    Policy

    The prior hiking cycle peaks at 5.25%.

  7. Bank begins raising rates

    Policy

    The Bank of England starts lifting rates from near zero to control inflation.

Scenarios

1

Bank hikes again in December

Possible Resolves by Dec 17, 2026

Discussed by: Traders cited by Reuters and Moneycontrol, and analysts at FXStreet

Governor Andrew Bailey said there is an argument for a further increase, and markets moved to price another rise as soon as the 17 December meeting. A renewed spike in energy prices would make that more likely. FXStreet expects one more hike by February 2027.

2

Rates held at 4% as inflation peaks

Possible Resolves by Q2 2027

Discussed by: FXStreet analysts, who are skeptical of more than one further hike

The Bank treats the energy shock as temporary and stops after one or two increases, holding at 4% while inflation crests near 5% in mid-2027 and then falls. This depends on energy prices stabilizing and no sign of wage or price knock-on effects.

3

Inflation overshoots, forcing a longer hiking cycle

Unlikely Resolves by Q1 2027

Discussed by: Bank of England's own warning that prolonged energy costs raise the risk of knock-on effects

If energy prices stay high, firms pass costs to consumers and workers demand higher wages, embedding inflation. The Bank would then need to raise rates further and hold them, echoing the 2022-23 cycle. Catherine Mann's dissent for a larger rise reflects this concern.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

December 2021 - August 2023

Post-pandemic inflation hiking cycle (2021-2023)

The Bank of England raised rates from 0.1% to 5.25% over 14 consecutive increases, as supply-chain disruption and the energy shock from Russia's invasion of Ukraine pushed inflation above 11%.

Then

Mortgage costs jumped sharply and UK inflation became the highest in the G7.

Now

Inflation fell back toward target by 2024, allowing the Bank to begin cutting rates in August 2024.

Why this matters now

The current hike is the first reversal of that cutting cycle, and the Bank is applying the same logic: raise rates to stop an energy shock from becoming embedded.

1973-1979

Oil shocks of the 1970s

OPEC oil embargoes and the Iranian revolution sent crude prices soaring, driving double-digit inflation across advanced economies and forcing central banks to raise rates sharply.

Then

Stagflation: high inflation combined with weak growth and rising unemployment.

Now

Central banks adopted a stronger anti-inflation mandate, and the episode shaped modern expectations about energy-driven price spikes.

Why this matters now

The Middle East war's disruption of oil and gas shipments echoes the supply shocks that made energy costs a central-bank problem in the 1970s.

Sources

(6)
BBC News Bank of England The Guardian Euronext FXStreet Moneycontrol