Bank of England raises key rate to 4% amid rising inflation risks

The Bank of England announced its first interest-rate increase in more than three years, raising the Bank Rate by a quarter-point to 4% after an 8-to-1 vote by the Monetary Policy Committee. One member dissented, preferring a 50-basis-point hike to 4.25%.

In a statement, the committee linked the move to the ongoing Middle-East conflict, noting that global energy prices have continued to climb from already elevated levels. Policymakers said they now expect U.K. inflation to rise to about 5% by the middle of 2027 before easing as the impact of higher energy costs fades and restrictive monetary policy takes effect.

Bank of England Governor Andrew Bailey warned that without progress toward resolving the Middle-East conflict, risks to energy prices and inflation remain elevated, leaving open the possibility of further rate increases.

Catherine L. Mann, the committee’s most hawkish member, said she voted for a larger tightening because research indicated “non-linear inflation risks” and argued that a 50-basis-point hike would reinforce policy credibility.

Government bond yields rose modestly after the announcement, with the 10-year gilt up 2 basis points to 5.1546% and the 2-year gilt gaining 4 basis points to 4.782%. The pound remained flat against the dollar and euro.

"The November hike was hugely symbolic," said Scott Gardner, investment strategist at JPMorgan Personal Investing. "It marks a 180-degree turn from earlier expectations that rates would fall as inflation appeared tamed, and underscores the uncertainty ahead given volatile oil and gas prices and signs of second-round inflation effects."