BoE raises policy rate to 4% as Governor Bailey outlines inflation outlook

The Bank of England increased its policy rate by a quarter-percentage point to 4% following its November meeting, matching market expectations. Eight members of the Monetary Policy Committee voted for the move, while one member, Catherine Mann, advocated a larger 50-basis-point rise.

In a press conference, Governor Andrew Bailey said inflation remains “enormously frustrating” but noted that evidence of second-round effects is still limited. He added that the UK economy has shown more resilience than anticipated, though activity is weaker than the Bank would like. Bailey highlighted the ongoing Middle-East conflict as a key factor influencing gilt yields and said that “unless there is progress towards resolving conflict, further increase in bank rate may be warranted.”

The Monetary Policy Report projected consumer-price inflation to peak around 5% in the second quarter of 2027 and to return to the 2% target by the third quarter of 2028. GDP growth forecasts were raised, with the Bank now expecting 1.6% growth in 2026, 1.3% in 2027 and 1.2% in 2028. Unemployment is forecast at 4.8% in 2026, rising modestly to 5.1% by 2028.

"Good news on Iran conflict would reduce risk of further inflation pressures, could lead to CPI peak somewhat below 5%."

"I will not sign up to ‘two and done’ outlook for rates."

The pound sterling edged higher after the announcement, with GBP/USD trading around 1.3470, close to recent two-month highs. Analysts noted that the market’s reaction will also depend on the vote split among MPC members, which could influence future currency moves.