Bank of England Raises Rates to 4% as Inflation Heads Toward 5%

The Bank of England raised its key interest rate by 0.25 percentage point to 4% on Thursday, saying higher energy prices tied to the Middle East conflict will push UK inflation to about 5% by the middle of next year.

The Monetary Policy Committee voted 8-1. Catherine Mann wanted a bigger half-point increase, to 4.25%. CNBC noted it is the bank's first hike since August 2023, and that markets had priced in more than a 99% chance of the move, per LSEG data.

Energy is doing the damage

UK consumer prices rose 3.5% in the year to September, the minutes say, and the bank's staff expect about 4.5% in early 2027. Brent crude futures averaged $108 a barrel over the 15 UK working days to Oct. 27, 38% above the level in the bank's July report.

Here's the mechanism. Bank Rate is what the BoE pays banks on money they park with it, so it sets the floor for UK borrowing costs. Raising it makes mortgages and business loans dearer, which is meant to cool spending before high fuel bills spread into wages and other prices. Two-year mortgage rates were already up nearly 50 basis points since early September, the minutes show.

Not all nine see more hikes

"In view of the news, the case is clear for a 25-basis point rise now," Governor Andrew Bailey said in the minutes. Alan Taylor voted for the hike but framed it narrowly: "this is not the start of a hiking cycle," he said, calling it a "one-for-now" insurance hike.

The 10-year gilt yield was about 5.15%, up 2 basis points, CNBC reported. Bitcoin was down 5.2% over 24 hours at about $76,450 at 11:55 a.m. ET, per CoinGecko, on a day U.S. chip stocks led a wider selloff.

In our opinion: the split inside the committee is the real story. One member wanted 50 basis points while another called this a single insurance move. Savers win a little and mortgage holders pay more. The next test lands Dec. 17, when the BoE decides again.