LONDON — The Bank of England raised Bank Rate by a quarter of a percentage point to 4% on Thursday, its first increase since 2023, as higher energy prices tied to the conflict in the Middle East drive British inflation up.
The Bank’s Monetary Policy Committee voted 8 to 1 for the increase at its meeting ending on Nov. 4. Eight members backed the quarter-point rise. Catherine Mann voted against it, preferring a half-point increase to 4.25%. Reuters reported the increase was the Bank’s first since 2023.
Inflation Heading Toward 5%
UK consumer price inflation reached 3.5% in September. Direct energy effects accounted for about 1 percentage point of that figure, most of it from fuels, the Bank said.
Bank staff now expect inflation to reach about 4.5% in the first quarter of 2027 and around 5% in the second quarter. That second figure is about 1.25 percentage points higher than the Bank projected in July.
Energy prices have climbed further since then. Over the 15 working days to Oct. 27, front-month Brent crude futures averaged $108 a barrel and UK natural gas futures averaged 216 pence a therm. Those levels were 38% and 81% higher, respectively, than at the time of the July report.
The Bank said there is still limited evidence that higher energy prices are feeding through to other prices and wages. Firms have absorbed some costs in lower margins, and some are shielded for now by fixed-price energy contracts and hedging. The case for a rise still won. Pressure was building in the pipeline, the Committee said, and recent figures had come in stronger than expected.
Canada moved first. Its central bank lifted its policy rate to 2.5% in late October, also its first rise since 2023. Governor Tiff Macklem had pointed to the same risk: dearer energy feeding into wider prices.
No Set Path for the Next Move
Governor Andrew Bailey backed the rise and left the door open to another. “In view of the news, the case is clear for a 25-basis point rise now,” Bailey said. Without news that softens the risks to inflation, he said, he could see the argument for a further increase.
Deputy Governor Clare Lombardelli made the same point. “Current circumstances warrant a 25 basis point increase in Bank Rate at this meeting,” she said. She added that another rise was likely soon unless signs of weaker inflation appeared.
Not every member framed it as the start of a series. Alan Taylor called the move a risk-management “one-for-now” insurance hike and said it was essential to communicate that “this is not the start of a hiking cycle.” The next move, he said, could be up, down or sideways.
Nothing is decided in advance, the Bank said. From here, the Committee will keep a close eye on pay deals, prices and spare capacity. If energy costs start to show up in wage and price-setting, it can lift rates again. The aim remains inflation back at 2% over the medium term. Its next rate decision is due on Dec. 17.
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