Bank of England raises rate to 4% for the first time in three years

First rate rise since August 2023

On 5 November 2026, the Bank of England raised its key rate by 0.25 percentage points — from 3.75% to 4%. This is the first increase since August 2023; before that, rates had been falling from a 15-year high of 5.25%, notes euronews. Eight of the nine members of the Monetary Policy Committee voted for the increase, while one favoured a larger rise — of half a point.

Why the regulator decided to act

According to euronews, the main driver of inflation growth this year was a sharp rise in fuel prices caused by the war in Iran and the resulting bottlenecks in the Strait of Hormuz, which reduced global oil and gas supplies. In September, inflation reached an 11-month high of 3.5% — well above the bank's 2% target. In its statement, the regulator acknowledged that evidence of energy price increases passing through to other prices and wages remains limited, and that the economy has proved more resilient than expected, but warned that «the degree of inflationary pressure in the outlook is now sufficient to justify raising the Bank Rate». Investec economist Ellie Henderson, quoted by the outlet, noted that the longer high energy prices persist, the greater the risk that a temporary price shock becomes permanent.

Forecasts: inflation heading to 5%, growth above expectations

Alongside its decision, the bank published a quarterly forecast: inflation could reach around 5% by mid-2027, up from 3.5% in September, as higher energy costs feed through into household and business bills. The growth forecast was raised — to 1.6% this year and 1.3% in 2027, against July's estimate of 1.1% for both years. The bank also expects the budget to reduce inflation by 0.25 percentage points by the second quarter of 2027, although in the medium term fiscal policy will weigh on growth. According to BBC economics editor Faisal Islam, the bank's forecast sees inflation approaching 5% next spring, while a typical energy bill will rise by 27% in January — to £2,150 a year; meanwhile, the economy is growing faster than forecast (0.6% and 0.5% in the first two quarters), and the pound has reached its highest level against a basket of currencies since the Brexit referendum.

What the decision means for borrowers and savers

As BBC Newsexplains, the main losers are borrowers, especially those on variable rates. Around 500,000 homeowners have a mortgage that «tracks» the Bank of England rate: for a typical loan, the monthly payment will rise by about £31. Another 500,000 borrowers on standard variable rates await their banks' decisions; a typical increase following a 0.25 percentage point rise is about £14 a month. Some 87% of mortgage holders are on fixed rates, so their payments will not change until the end of their current term (usually two or five years), but new deals are getting more expensive: two-year mortgage rates have risen by almost half a point since early September, euronews notes. Savers, by contrast, benefit from the rise, but, according to Rachel Springall of Moneyfacts, quoted by the BBC, keeping £20,000 in closed older accounts cost them £139 in lost income over three years compared with accounts available on the market. For businesses, the increase means more expensive credit: Ryse 3D founder Mitchell Barnes, commenting to the BBC, suggested that companies would cut hiring and replace workers with automation.

Will there be further increases

The committee did not send a unified signal. According to Faisal Islam's observation, three of the nine voters mentioned 'increases' in the plural, one voted for two steps at once to 4.25%, while three, including Governor Andrew Bailey, spoke of only one further increase; Islam himself expects one more increase in February. Bailey, as euronews reported, said that today's increase 'should not be seen as the first in an inevitable long series', but if the conflict in the Middle East is not resolved, it 'is unlikely to be the last'. According to the Market Participants Survey, the median expectation among market participants is a rate of 4% in November and 4.25% in February. Uncertainty is high: on the day of the decision, oil was trading 13% below the average forecast level of $108 per barrel, which reflects expectations of de-escalation after the US midterm elections, Islam notes.

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