Bank of England lifts Bank Rate to 4% on energy shock, not demand

The Bank of England raised Bank Rate by 0.25 percentage points to 4% on Thursday 5 November 2026, its first increase in over three years. The Monetary Policy Committee voted 8–1, with one member preferring a larger half-point rise to 4.25%. The move follows six consecutive holds at 3.75%.

The decision was driven by an energy shock, not domestic demand. CPI inflation was 3.5% in the 12 months to September, up from 3.1% in August and 2.6% in June. The Bank now expects inflation to reach around 5% by the middle of 2027. Brent crude and UK gas futures averaged $108 per barrel and 216 pence per therm over the 15 working days to 27 October.

Governor Andrew Bailey framed the increase as a response to external pressure rather than the start of a sustained campaign. He said it "shouldn't be seen as the first in an inevitable long sequence of hikes," but added it did not seem likely to be the last unless the Middle East conflict is resolved. That is a narrow commitment: the Bank is willing to tighten further if energy prices stay elevated, but it is not signalling a pre-set path.

The Bank expects inflation to fall after mid-2027 as higher energy price effects fade and restrictive policy bears down, towards the 2% target. That forecast depends heavily on a conflict it does not control.

For UK households, the immediate effects are uneven. Homeowners on variable-rate or tracker mortgages will see borrowing costs rise. First-time buyers face a higher entry point. Savers should eventually see better rates on deposits, though banks do not always pass increases through quickly. Businesses with floating-rate debt will pay more.

The tension is straightforward. The Bank has an inflation-fighting mandate, and inflation is heading towards 5%. But the spike is largely externally driven, and the Governor is openly reluctant to commit to a sustained hiking cycle. Whether this is a one-off or the start of something longer depends less on the UK economy than on what happens in the Middle East.