Bank of England lifts base rate to 4% amid Middle East oil price surge

The Bank of England increased its base interest rate from 3.75% to 4%, marking the first rise in three years, as the monetary policy committee warned that inflation could climb to 4.9% by mid-next year. Eight of the nine committee members supported the move, while Catherine Mann advocated for a larger half-point increase.

Governor Andrew Bailey said the decision reflects the impact of elevated oil prices on business and consumer costs and noted that a resolution to the Iran conflict will be a key factor in future policy. > "Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates and thereafter taking a more conditional approach," he said in the meeting minutes. > "Today’s increase shouldn’t be seen as the first in an inevitable long sequence in hikes. But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase."

The committee expects the Ofgem energy cap to rise to £2,150 per year for an average household in January, with another increase planned for April, and projects food price inflation could reach 4.75% by mid-2027. While businesses have so far managed higher energy costs through hedging, the Bank warns that they may soon pass these costs onto consumers.

Labour Chancellor John Healey, presenting his first budget a week earlier, announced measures to ease the impact of higher energy prices, including a £100 energy payment for twenty million households, an extension of the fuel duty freeze, and a continued VAT cut on electricity bills. He said the budget aims to provide "breathing space" for families and businesses.

The next rate decision is scheduled for 17 December.