Key facts
- The Monetary Policy Committee voted 8-to-1 to raise Bank Rate to 4% from 3.75%.
- Catherine Mann dissented, favoring a 0.5 percentage point increase.
- UK inflation was 3.5% in September, the report said.
- The Bank projected inflation near 5% by the second quarter of 2027 and 6.2% in an adverse scenario.
- Governor Andrew Bailey said the increase is unlikely to be the last unless the Middle East conflict is resolved.
- The Bank forecast the energy price cap would reach £2,150 in the first quarter of 2027.
The Bank of England's nine-member Monetary Policy Committee voted 8-to-1 to raise its key interest rate to 4% from 3.75% on November 5, 2026, the first increase since August 2023. The committee said the energy shock since the war in Iran began has built sufficient inflation pressures to justify the move. UK inflation was 3.5% in September, and the economy posted better-than-expected growth, raising the risk that prices could take off.
Catherine Mann dissented, favoring a larger increase of 0.5 percentage points. Governor Andrew Bailey said the increase should not be seen as the first in an inevitable long sequence of hikes, but that unless the conflict in the Middle East is resolved, it seemed unlikely to be the last.
The Bank projected inflation would pick up to nearly 5% by the second quarter of 2027, higher than its previous forecast, with greater spillover into wages and other prices. Under an adverse scenario in which prices stay higher for longer and the Middle East conflict continues, inflation would hit 6.2% in the third quarter of 2027. The Bank also pushed back on market expectations that rates could be raised to 4.75% or 5% in 2027.
The decision comes a week after Chancellor John Healey delivered his first budget, with Britons paying the highest energy prices in three years. The Bank forecast the energy price cap would reach £2,150 in the first quarter of 2027, and said food price increases could hit 4.75% by mid-2027. Healey's budget will knock 0.25 percentage points off inflation by the second quarter of next year, the Bank said.
The report said Trump's Republican Party lost the US midterm elections on Tuesday, raising the prospect of a peace deal in the Middle East, and that oil prices fell sharply on Wednesday amid expectations Democrats could limit funding for the conflict. Vice-President JD Vance blamed the Iran war for the electoral losses, and Prime Minister Andy Burnham said the elections create an opportunity to focus on the cost of living.