LONDON — The Bank of England raised interest rates on Thursday for the first time in more than three years, lifting Bank Rate by a quarter of a percentage point to 4%, and warned that at least one more increase is likely if the war between the United States, Israel and Iran continues to push up energy prices, according to Reuters.
The Bank’s Monetary Policy Committee voted 8 to 1 for the rise, its first since August 2023. The one dissenting member, Catherine Mann, voted for a bigger half-point rise to 4.25%. The rate had stood at 3.75% since December 2025.
Governor Andrew Bailey said the decision should not be seen as the start of an “inevitable long sequence of hikes,” but added that, unless the conflict in the Middle East is resolved, it does not seem likely to be the last increase either.
Energy is driving inflation again
The Bank said the rise was warranted by higher energy prices stemming from the war, which have pushed up global oil prices and, with them, British fuel costs. Consumer prices rose 3.5% in the year to September, up from 3.1% in August, with energy alone adding about a percentage point.
In its November Monetary Policy Report, the Bank now expects inflation to peak at about 4.9% in the middle of next year — higher than it had earlier estimated — and not to return to its 2% target until 2028. The Bank of England is the last major central bank to begin raising rates in this cycle, following a path its main peers have already taken since the war began eight months ago.
What it means for households
A higher Bank Rate feeds through to mortgages, loans and credit cards across Britain, while paying savers a little more on deposits. For borrowers on deals that track the Bank Rate, Thursday’s rise adds to monthly costs at the same time as fuel bills are climbing — the same energy shock working through two channels at once.
Britain is not alone in facing the choice. The U.S. Federal Reserve left its benchmark rate in a 3.75% to 4.00% range last week while acknowledging that inflation remains a concern, and European Central Bank President Christine Lagarde has said more data is needed before the ECB’s December meeting, according to Reuters. Australia’s hiking cycle may now be over, while Brazil’s central bank has paused its rate cuts — a picture, as Reuters put it, that has left investors none the wiser about the broader direction of policy.
The committee’s next decision is due on December 17, and the next inflation figures arrive on November 18. Both will show whether Thursday’s move was a single step or the start of a longer climb. Reuters’ report of the decision has the Bank’s full reasoning.
