Bank of England lifts base rate to 4% amid Middle East conflict pressures

The Bank of England increased its base rate from 3.75% to 4% – the first rise in more than three years – as part of efforts to curb inflation driven by higher energy prices. Governor Andrew Bailey said the move should not be viewed as the start of a long series of hikes, but added that another increase is likely unless the conflict in the Middle East is resolved.

The rate-setting committee voted unanimously for the 0.25-point rise, with eight of nine members in favour and one member preferring a larger increase to 4.25%. Committee members noted that further hikes could be required depending on energy price trends and inflation dynamics.

Shadow chancellor Andrew Griffith attributed the rise to inflation that he said had increased under the Labour government, while Chancellor John Healey highlighted budget measures aimed at easing household energy costs, including a £100 payment for some families and an extension of a tax cut on electricity bills.

Economists cited the ongoing Iran-US conflict as a key factor pushing global fuel prices higher, which in turn raises transport and goods costs in the UK. Mohammed El-Erian, chief economic adviser at Allianz, said the Bank cannot control international energy prices but must act to prevent spill-over effects on the domestic economy.

The rate increase will raise borrowing costs for mortgages, loans and credit cards, while also offering higher returns for savers. Analysts noted that a stronger pound, which has recently reached its highest level since the 2016 Brexit referendum, could help temper inflation by improving purchasing power for imported goods.