Bank of England Raises Interest Rates to 4%

The Bank of England raised its key interest rate by 25 basis points to 4% on November 5, 2026, marking the first increase in borrowing costs since August 2023. The Monetary Policy Committee approved the hike in an 8-1 vote, though member Catherine Mann dissented by calling for a larger 0.5 percentage point increase. The decision responds to inflation that reached 3.5% in September, driven largely by oil and gas supply disruptions resulting from a nine-month war in Iran.

Governor Andrew Bailey warned that further increases are likely unless the Middle East conflict is resolved, with inflation projected to peak near 5% by the second quarter of 2027. While the bank upgraded its 2026 GDP growth forecast to 1.6% due to resilient AI-related investment, it remains concerned about second-round effects where energy costs trigger a spiral of higher wage demands.

To mitigate the cost-of-living crisis, Chancellor John Healey implemented budget measures including a £100 energy payment for 20 million households, a freeze on fuel duty, and an extension of electricity bill tax cuts. The rate hike immediately impacts approximately 510,000 homeowners on tracker mortgages and 470,000 on standard variable rates. Meanwhile, the British Retail Consortium reported that food inflation rose to 2.9% in October as retailers stopped absorbing rising energy and employment costs.