The Bank of England raised interest rates on Thursday for the first time in more than three years, as energy prices push British inflation toward 5%.

The Monetary Policy Committee voted 8–1 to lift Bank Rate by a quarter of a percentage point, to 4% from 3.75%. It was the first increase since August 2023, ending six consecutive holds since the December 2025 cut.

The surprise was not the hike itself — markets had fully priced it — but the dissent. Catherine L. Mann, the committee’s most hawkish member, voted for a half-point increase to 4.25%. No member voted to leave rates unchanged. The Bank is not raising rates because the economy is overheating; it is raising them because an energy shock is doing the work of inflation for it, and the committee wants to make sure the shock does not become permanent. Our preview of the decision set out the case for a hike the day before it was announced.

What the Bank actually said

The decision, published on 5 November alongside the Bank’s quarterly Monetary Policy Report, rests on two judgements: the conflict in the Middle East, now in its ninth month, has kept global energy prices rising from an already elevated level, and the pipeline of inflationary pressure is now strong enough to warrant a response even though there is still limited evidence of higher energy costs spilling into wages and other prices.

UK consumer price inflation reached 3.5% in September, up from 3.1% in August. The Bank now expects it to climb to around 4.5% in the first quarter of 2027 and around 5% in the second, before falling back toward the 2% target in the second half of 2028.

Governor Andrew Bailey said a further increase “may be warranted” if the conflict continues to disrupt energy supplies. But the Bank kept its options open: monetary policy, it repeated, “is not on a pre-set path”. It also upgraded its growth outlook to 1.6% this year and 1.3% next year. Growth is not the constraint. Inflation is.

The hawk who wanted more

Mann’s dissent matters because of what it signals about the committee’s internal debate. In September, three members already wanted a hike to 4%; the committee held by 6–3. In November, the holdouts converted — and one member went further, warning of “non-linear inflation risks” and the danger of a loss of confidence in the central bank. The last time inflation ran this far above target, in 2022, the Bank was criticised for moving too slowly, and Mann’s argument is that the cost of acting late exceeds the cost of acting early.

Other members were more cautious, arguing in the minutes that the move should not be read as the start of a prolonged tightening cycle. The divide is not over whether to hike now, but over how much more is needed — and that divide will define the December meeting.

The first of the big four to move

The Bank of England is the first of the world’s four major central banks to actually raise rates in this round. The Federal Reserve, the European Central Bank and the Bank of Japan all held in the last week of October, each with hawkish dissents of its own:

Two things stand out. First, every one of the four decisions in the past ten days featured a hawkish dissent. Second, Bank Rate at 4% now sits exactly at the top of the Federal Reserve’s target range, erasing the gap that had opened up between British and American rates. For background on the Fed’s side of that comparison, see our guide to how the Fed sets interest rates, and our report on the Fed’s hawkish hold in October.

The market’s verdict was muted. Sterling barely moved, trading near $1.347 against the dollar, and ten-year gilt yields stayed just above 5%. Traders still price a better-than-even chance of a hold at 4% in December, and the Bank’s survey of market participants has a median expectation of one more hike, to 4.25% in February, followed by cuts back to 3.5% over the next two to three years. Markets see a short, sharp adjustment — not a new hiking cycle.

The case for — and against — the hike

The argument in favour is straightforward. Energy is a cost that households and businesses cannot avoid, and a 5% inflation peak would push real wages down and squeeze living standards. Acting now, while the shock is still mostly a direct effect on energy bills, is cheaper than acting later, when it has spread into pay settlements and service prices.

There is also a credibility argument. The Bank’s target is 2%, and inflation is heading for two and a half times that level. A central bank that holds rates while its own forecast shows inflation rising to 5% invites the market to doubt the target.

The counter-argument is that the Bank is fighting the wrong inflation. Energy prices are set in global markets; raising Bank Rate does nothing to end a war or lower the oil price. What it does is slow domestic demand, at a moment when growth is already modest at 1.3% for next year. If the energy shock fades on its own, as the Bank’s forecast assumes it will by late 2028, today’s hike may look premature.

The global context cuts both ways as well. The Federal Reserve decides on 8–9 December, with markets pricing a roughly three-in-four chance of a hike. If the Fed hikes and the Bank holds, the rate gap reopens and sterling weakens, importing more inflation. If both hike, the combined tightening could bite harder than either intends.

What to watch next

The calendar gives the Bank little time to second-guess itself. The next decision is on 17 December — the same day as the European Central Bank’s.

First, the US jobs report, due later today, Friday 6 November. Economists expect a gain of around 55,000 to 65,000 jobs in October, with unemployment steady at 4.2%. A weak number would give the Federal Reserve’s doves something to work with ahead of December; a strong one would make a December hike easier to justify.

Second, the UK’s own data. The Office for National Statistics publishes its first estimate of third-quarter GDP on 12 November, and the October inflation figures arrive later in the month. If services inflation stays sticky, the case for a December move strengthens; if it cools, the Bank can afford to wait.

Third, energy itself. The Bank’s forecast assumes the Middle East conflict continues to pressure prices but does not escalate further. Any ceasefire — or any escalation — would change the inflation path faster than any domestic data point.

The Bank has made its move, and made it more decisively than the vote count alone suggests. Whether it was a one-off adjustment or the first step in a cycle will be decided by data not yet published.

This article is for informational purposes only and does not constitute financial advice.