Bank of England Raises Rates for First Time in Three Years as Energy Drives Inflation
The Bank of England raised its benchmark interest rate by 0.25 percentage points to 4% on Nov. 5, its first increase since August 2023. With energy prices pushed higher by the conflict in the Middle East, British inflation is running well above target, and the bank returned to tightening after three years.
Eight of the nine members of the Monetary Policy Committee voted for the 0.25-point rise. Catherine Mann argued for a 0.5-point increase to 4.25%. The rate had stood at 3.75% since a cut in December 2025. At the September meeting, the committee voted 6-3 to hold.
Energy is the reason for the rise. The Middle East conflict, now in its ninth month, has pushed global energy prices higher from already elevated levels. British consumer price inflation was 3.5% in September, well above the Bank of England’s 2% target. The bank said higher energy prices alone added about one percentage point to inflation.
The bank expects inflation to rise to around 5% by the middle of 2027. Its central forecast in the November Monetary Policy Report sees inflation averaging 4.9% in the second quarter of 2027, then easing slowly and returning to the 2% target only in the third quarter of 2028. That forecast assumes energy prices fall in line with market expectations.
The bank said evidence that higher energy prices are spreading into wages and other prices, known as second-round effects, is still limited. But it judged that accumulated inflationary pressure is now enough to warrant a rise. Stronger-than-expected economic activity also supported the case, Reuters reported.
Governor Andrew Bailey said the increase “shouldn’t be seen as the first in an inevitable long sequence of hikes.” But he added that “unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase.” Bailey said “monetary policy cannot influence global energy prices,” and the bank raised rates to stop higher energy costs from spreading more widely through consumer prices.
The next rate decision is Dec. 17. The bank said monetary policy is “not on a pre-set path” and it will judge the evidence at each meeting. In the bank’s November survey of market participants, the median respondent expected the benchmark rate to reach 4.25% in February. The bank also raised its growth forecasts to 1.6% for this year and 1.3% for next year, from 1.1% for each.
The decision reaches British households directly. The household energy price cap rose to 1,723 pounds in the fourth quarter of 2026 and is expected to reach about 2,150 pounds in the first quarter of 2027. Bailey said January’s utility bill rise alone will add about 0.4 percentage points to headline inflation.