Catenaa, Thursday, November 05, 2026- The Bank of England raised its key interest rates for the first time after three years as higher energy prices push up UK inflation.
According to CNBC, the Bank of England raised its key rate by 25 basis points to 4%, which was a widely anticipated move that marked the bank’s first hike since August 2023.
The Monetary Policy Committee voted 8-1 to raise rates. Eight members backed a quarter-point rise, while MPC member Catherine L. Mann voted for a half-point increase to 4.25%.
“The conflict in the Middle East is now in its ninth month,” the MPC said in a statement Thursday. “Global energy prices have continued to rise from an already elevated level.”
CNBC reported that policymakers now expected UK inflation to rise to “about 5%” by mid-2027.
“It is then projected to fall as the impact of rising energy prices on 12-month inflation rates fades, and still restrictive monetary policy bears down on inflation,” they said, according to CNBC.
The bank said there is limited evidence of knock-on effects from energy costs on other prices and wages. It judged, however, that “the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate.” Activity data in recent months have generally been stronger than expected, the bank said.
Front-month Brent crude oil futures averaged $108 per barrel over the 15 UK working days ending October 27, 38% higher than at the time of the July report.
A CNBC report citing LSEG data said markets had been pricing in more than a 99% chance of a rate hike ahead of the announcement. Traders were also pricing in a one-in-four chance of a further hike in December.
The bank said monetary policy is not on a pre-set path. The committee will adjust Bank Rate as necessary to return inflation to the 2% target in the medium term.
In the minutes of the meeting, Bank of England Governor Andrew Bailey said that “without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates and thereafter taking a more conditional approach, dependent on the evidence on energy prices and inflation dynamics.”
MPC member Alan Taylor, who backed the quarter-point rise, wrote that “this is not the start of a hiking cycle.” He described the move as a risk-management “one-for-now” insurance hike.
Mann said research points to non-linear inflation risks. She wrote that “from a risk management and credibility perspective, a 50-basis point hike in Bank Rate is ‘good policy.'”
