In brief

• The Bank of England raised its base interest rate by 0.25 percentage points, to 4.00 percent, for the first time since August 2023.
• Eight of the nine committee members voted for the increase, and one wanted a half-point increase.
• The Bank forecasts that UK inflation will rise to 4.9 percent by mid-next year and does not rule out another rate increase.

Interest rate decision

On Thursday, the Bank of England raised its base interest rate by 0.25 percentage points, to 4.00 percent (Anglijos bankas bazinę palūkanų normą padidino pirmą kartą per trejus metus, gerina BVP prognozes – vz.lt) (Britská centrální banka poprvé za více než tři roky zvýšila úrokové sazby – Seznam Zprávy) (Británie bojuje s vysokou inflací. Centrální banka po letech zvýšila úroky – Novinky.cz). The increase was in line with market expectations. It is the first rate rise since August 2023 (El Banco de Inglaterra sube los tipos de interés por primera vez en tres años hasta alcanzar el 4% – EL PAÍS) (Bank of England raises interest rates to 4%, the first increase for more than three years – The Guardian).

Committee vote

Of the nine members of the Monetary Policy Committee, eight voted for the increase and one voted against. Catherine Mann wanted a stronger step, a half-point increase. Economists polled by Reuters had instead expected a vote to keep rates at their current level.

Causes: energy and Hormuz

The Bank explains the decision primarily by rising energy prices. According to the Bank, oil and natural gas markets are tight due to the renewed escalation of the conflict in the Middle East and concerns about further escalation in the coming months. Although shipping traffic through the Strait of Hormuz has increased since the summer, attacks on transport vessels continue to disrupt supplies. Oil has remained above $100 a barrel for several months.

Inflation forecasts

The Bank expects UK inflation to rise to 4.9 percent by mid-next year, compared with the 3.2 percent indicated in its previous forecast. The Bank also warned that another rate increase is possible (Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5% – CNBC).

What follows from this

For borrowers and businesses, this means more expensive financing, since interest rates on loans and credit usually follow the base rate. The Bank will only consider rate cuts later.

Read also

• Inflacja w Wielkiej Brytanii wzrosła do 3,5 proc. we wrześniu i podsyca oczekiwania podwyżek stóp procentowych