Bank of England raises rates to 4%, first hike in over three years

In brief

• The Bank of England raised its base rate by a quarter point to 4%, its first increase since 2023.
• Eight of nine policy committee members voted for the rise, while one wanted a half-point move.
• The Bank expects UK inflation to peak at 4.9% next year and warned of another possible increase.

Rate rise after more than three years

The Bank of England raised its base rate by a quarter point to 4% on Thursday, ending a period of more than three years in which borrowing costs stayed unchanged (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). Analysts had anticipated a cut this year before the conflict in Iran, making the decision a sharp reversal of course.

Vote split and a warning ahead

Eight members backed the increase. Catherine Mann wanted a larger move of half a percentage point (Britská centrální banka poprvé za více než tři roky zvýšila úrokové sazby – Seznam Zprávy). The Bank also warned that another rise may follow in the coming months (Pierwsza podwyżka stóp Banku Anglii od 2023 roku. Będą kolejne – Puls Biznesu).

Energy shock feeds inflation

The Middle East conflict has kept oil prices above $100 a barrel for months, after hopes faded for a deal that would reopen the Strait of Hormuz. Global oil and gas markets remain tight because of renewed fighting and fears of further escalation, while attacks on shipping have continued even as traffic through the strait has grown since summer (Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5% – CNBC).

The Bank now expects UK inflation to peak at 4.9% around the middle of next year, up from the 3.2% it forecast in its previous assessment. It also expects inflation to approach 5%.

What it means for borrowers and savers

A higher base rate generally feeds through to mortgage, loan and savings rates, although banks set their own pricing and do not always pass the change on in full. The move is part of a wider global tightening of monetary policy as central banks respond to renewed inflation pressure linked to the Middle East war (Pierwsza ćwiartka w górę od ponad 3 lat. Bank Anglii aplikuje podwyżkę stóp procentowych – Bankier.pl).