Bank of England Raises Interest Rate to 4% in First Hike Since 2023

The Bank of England raised its benchmark interest rate by 0.25 percentage points to 4% on November 5, marking its first rate increase since August 2023.

Rate Increase to 4 Percent

The Monetary Policy Committee voted 8–1 on November 4 to move the base rate from 3.75% to 4%, according to Radarr Africa. One member, Catherine Mann, voted for a larger increase of 0.5 percentage points to 4.25%, as reported by Radarr Africa.

Derivatives markets had priced the increase as a near-certainty ahead of the meeting. CNBC noted that the move made the Bank of England the last major central bank to embark on a tightening cycle since the U.S. and Israel went to war with Iran eight months ago.

“Today’s increase should not be seen as the first in an inevitable long sequence of hikes,” Bank of England Governor Andrew Bailey said in a press conference. “But unless the conflict in the Middle East is resolved, neither does it seem likely to be the last.”

UK Consumer Price Inflation May Climb to 5%

The central bank expects UK consumer price inflation to climb to about 5% by the middle of 2027, driven by higher global energy prices and the conflict in the Middle East, according to Radarr Africa. Office for National Statistics data showed UK consumer price inflation reached 3.5% in September, exceeding the Bank’s 2% annual target.

Energy price caps will rise again in January 2027, which will spread energy costs more widely across firms as fixed-price contracts expire. CNBC noted that the UK remains particularly vulnerable to external energy shocks as a net energy importer.

Catherine L. Mann described her vote for a larger 50-basis-point increase as a necessary step to address non-linear inflation risks. “My recent votes to increase Bank Rate by 25 basis points represented a ‘down payment’ to lean against second-round effects, reinforce credibility, and uphold ‘good policy’,” Mann said in comments published by CNBC.

Economists Hold Mixed Views on Future Interest Rate Hikes

Economists hold mixed views on whether the central bank will continue raising borrowing costs through 2027. Pimco economist Peder Beck-Friis expects one final hike in February followed by a prolonged hold, characterizing the tightening as a risk-management calibration rather than a response to strong second-round wage effects.

BNY Investments co-head of client portfolio management April LaRusse said that while the hike reinforced the bank’s inflation-fighting credibility, financial markets may be pricing in too much further tightening. ING developed markets economist James Smith expects one more quarter-point increase before rate cuts begin in 2027 and 2028.

Meanwhile, yields on UK government bonds rose following the announcement. CNBC reported that the 10-year gilt yield increased 2 basis points to 5.1546%, while the 2-year gilt yield rose 4 basis points to 4.782%.

Earlier coverage: Bank of England raised base interest rate to 4 percent

More on this story: The Bank of England raised its benchmark interest rate to four percent on Thursday, marking the · Bank of Canada raises key policy rate to 2.5% on October 28