Bank of England raises base rate to 4% — The Guardian

The Bank of England has raised the base interest rate in the United Kingdom from 3.75% to 4%. This is the first increase since August 2023. As The Guardian reports, the decision was made amid rising inflation and energy costs linked to the war in Iran.

Committee vote

Eight of the nine members of the Bank of England’s Monetary Policy Committee voted to raise the rate by 0.25 percentage points. The committee’s ninth member, Catherine Mann, supported a more forceful move — an immediate increase of 0.5 percentage points.

Bank of England Governor Andrew Bailey said that another rate increase could be possible in the near future if inflation risks do not ease. At the same time, he noted that the current decision should not be seen as the start of an inevitable prolonged series of increases. The Bank of England is due to announce its next rate decision on December 17.

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Inflation forecast and household costs

The Bank of England now expects inflation in the United Kingdom to reach 4.9% in the middle of next year. In its July forecast, the regulator expected it to stand at 3.2%. In September, inflation measured by the consumer price index was 3.5%.

According to the regulator’s assessment, the conflict in the Middle East kept oil prices above $100 per barrel. This could increase costs for businesses and consumers. The Bank also expects the energy price cap set by Ofgem to rise to £2,150 in January and increase again in April. Food price inflation could reach 4.75% by the middle of 2027, according to the regulator’s forecast.

The Bank of England believes that companies that have so far partly contained the impact of more expensive oil and gas through hedging their energy costs may begin passing these costs on to customers through higher prices.