Bank of England raises rate to 4% as energy costs fuel inflation

The Bank of England raised its benchmark interest rate by a quarter point to 4% on 5 November, its first increase since August 2023, as higher energy costs added to inflation pressure. The Monetary Policy Committee voted 8-1 for the increase, with one member favouring a half-point rise to 4.25%.

The bank had held the rate at 3.75% since December. The increase came amid disruption to energy supplies linked to the US-Iran conflict and higher global energy prices. Governor Andrew Bailey said further increases were not inevitable, though another move could be needed if the conflict remained unresolved.

Inflation and growth outlook

UK annual inflation was 3.5% in September, above the bank’s 2% target. Its central forecast put inflation’s peak in the second quarter of 2027, but reports differ on the estimate: two give 4.9%, while another gives 4.8%. In a more adverse scenario, inflation could reach 6.2% in the third quarter of 2027.

The bank lifted its growth forecasts to 1.6% for 2026 and 1.3% for 2027, from 1.1% for each year in its July projections. It cited business investment, including demand related to artificial intelligence, among factors behind the growth outlook.