London —The Bank of England raised Bank Rate by 25 basis points to 4% on Thursday, its first increase since August 2023. It also warned that UK inflation is likely to climb to around 5 percent by the middle of next year because the Middle East conflict is keeping energy prices high. The Monetary Policy Committee voted 8–1 for the move. Catherine Mann wanted a larger increase of 50 basis points, to 4.25%.
The decision reverses the Bank’s most recent cut, which took Bank Rate to 3.75% on Dec. 18, 2025. The rate had stayed at that level until Thursday. According to the Bank’s official rate history, the previous increase came on Aug. 3, 2023, when the rate reached 5.25%.
Why the Bank moved
UK CPI inflation rose to 3.5% in September. The minutes say direct energy effects, mostly from fuels, accounted for around 1 percentage point of that figure. Bank staff now expect headline inflation of about 4.5% in the first quarter of 2027, roughly 1.25 percentage points higher than in the July forecast, and about 5% in the second quarter. The Bank’s target is 2%.
The minutes show that front-month Brent crude futures averaged $108 a barrel in the 15 UK working days to Oct. 27. UK front-month natural gas futures averaged 216 pence per therm over the same period. Those levels were 38% and 81% higher than when the July Monetary Policy Report was prepared.
The committee said there was still limited evidence of energy costs spilling over into other prices and wages. Even so, it judged that the inflationary pressure building up was now large enough to justify an increase. It added that activity data had generally been stronger than expected, which strengthened the case for slightly tighter policy. The Bank expects measures in the Oct. 28 Budget to reduce CPI inflation by 0.25 percentage points by the second quarter of 2027.
The Guardian reported that Governor Andrew Bailey signaled another rise could follow soon. The official policy statement was more guarded on what comes next. It said monetary policy “is not on a pre-set path” and that the committee would weigh the evidence at each meeting.
Borrowers and markets
Households were already facing tighter credit before the decision. According to the minutes, benchmark two-year mortgage rates have risen by nearly 50 basis points since the beginning of September, and new mortgage approvals have been falling. Lending to businesses has continued to grow strongly. In the Bank’s latest Market Participants Survey, the median respondent expected Bank Rate to reach 4% in November and 4.25% in February. That path is still lower than the one priced into the UK short-term interest rate curve.
Sterling barely moved. The BBC reported that most analysts had expected the increase. The British pound traded at $1.3483 as of 17:58 GMT, up 0.09 percent on the day. The FTSE 100 stood at 10,782.66 after the London close, down 0.43 percent, in delayed data timed at 16:40 GMT. Brent crude oil traded at $97.43 a barrel as of 17:48 GMT, up about 3 percent on the day. That is below the $115.32 recorded on Oct. 28 but well above the $63.52 of a year earlier.
Brent crude has traded above $70 a barrel since early March
Brent crude oil, US dollars per barrel, selected dates
Source: Economy & Markets market data (Brent crude oil, delayed quotes)
What to watch
The next decision is due on Dec. 17. The committee said it will watch underlying pay, pricing behavior and slack in the economy for signs of second-round effects. It also noted that households and firms appear to be paying closer attention to headline inflation than in the past. Energy prices are likely to matter most. The minutes say that a credible and lasting de-escalation in the Middle East could bring prices down. Continued conflict, wider escalation or further damage to refining capacity could keep them above the levels now implied by futures curves.
