Bank of England Raises Rates to 4% in an 8-1 Vote, Its First Hike Since 2023, and Sees Inflation Near 5%

The Bank of England raised its main interest rate on Thursday, November 5, 2026, for the first time in more than three years, saying higher energy prices linked to the conflict in the Middle East had built up enough inflationary pressure to justify tighter policy.

The central bank's Monetary Policy Committee voted 8-1 to increase Bank Rate by 0.25 percentage point to 4%, according to the Monetary Policy Summary and minutes published at noon in London, or 7:00 a.m. ET. The one dissenting member, Catherine L Mann, voted for a larger increase of 0.5 percentage point, to 4.25%. It was the first rate rise since August 2023, The Guardian reported.

Bank Rate had been at 3.75% since December 2025, when the committee cut it from 4%, according to MoneyWeek.

Inflation expected to climb further

The Bank said the conflict in the Middle East is now in its ninth month and that global energy prices have continued to rise from an already elevated level. UK consumer price inflation rose to 3.5% in September, up from 3.1% in August, and the Bank said it is now expected to rise to around 5% by the middle of next year before falling as the effect of higher energy prices on annual rates fades.

Bank staff projected headline inflation of about 4.5% in the first quarter of 2027 and about 5% in the second quarter, according to the minutes. The first-quarter figure is about 1.25 percentage points higher than in the Bank's July Monetary Policy Report.

The minutes said front-month Brent crude futures and UK front-month natural gas futures averaged $108 a barrel and 216 pence per therm over the 15 UK working days ending October 27, which was 38% and 81% higher, respectively, than at the time of the July report. Direct energy effects contributed around 1 percentage point to September's 3.5% inflation rate, mostly through fuels.

"The degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate," the committee said, adding that activity data in recent months had generally been stronger than expected. It also said there remains "limited evidence" so far of knock-on effects from energy costs on other prices and wages.

How the committee voted

The eight members who backed the quarter-point increase were Governor Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Huw Pill, Dave Ramsden and Alan Taylor. The minutes said Mann favored a half-point move because, in her view, an "activist approach" was needed to prevent persistent inflation dynamics from becoming embedded.

The committee said monetary policy "is not on a pre-set path" and that it will adjust Bank Rate as necessary to return inflation to its 2% target in the medium term. It said it will watch how far high energy prices feed through to other prices by tracking underlying pay, pricing behavior and spare capacity in the economy.

The minutes noted that benchmark two-year mortgage rates had risen by nearly 50 basis points since the beginning of September, and that the median expectation in the Bank's latest Market Participants Survey was for Bank Rate to reach 4% in November and 4.25% in February. The committee was also briefed on the government's October 28 Budget, whose measures were expected to reduce inflation by about 0.25 percentage point by the second quarter of 2027.

A widely expected move

Financial markets had priced in the increase. Before the announcement, money markets showed a 99.96% chance of a quarter-point rise, The Guardian reported. George Vessey of payments company Convera said markets were pricing almost 100 basis points of additional tightening through late 2027.

Economists had largely forecast the decision. Robert Wood, chief UK economist at Pantheon Macroeconomics, had expected an 8-1 vote, and Oxford Economics had forecast a further increase to 4.25% in February 2027, MoneyWeek reported. The Associated Press described the move as an effort to tackle an inflation shock stoked by the Iran war.

Pound and UK stocks

The pound had climbed to its strongest level against a basket of currencies since June 23, 2016, the day of the Brexit referendum, on Wednesday, The Guardian reported, helped by a weaker U.S. dollar after the midterm elections and expectations of a rate rise. At about 7:06 a.m. ET on Thursday, sterling traded near $1.3478, according to Yahoo Finance data.

In London, the FTSE 100 rose as much as 119 points to 10,948 on Thursday morning, its highest level since August 7, CNBC reported. Shares of British lenders gained ahead of the decision, with Barclays up 2.2%, Lloyds Banking Group up 1.9% and NatWest 1.4% higher.

Elsewhere in Europe, Norway's central bank left its policy rate unchanged at 4.5% on Thursday but said it was prepared to raise borrowing costs if needed to bring inflation down to target, according to The Guardian.