Bank of England Hikes Rates to 4% — First Rise Since 2023, More May Come

The Bank of England raised interest rates to 4% on Thursday, November 5, 2026 — its first hike since August 2023 — and warned at least one more increase is likely if the US-Iran conflict keeps energy prices high. The Monetary Policy Committee voted 8-1 for the quarter-point rise from 3.75%, and the Bank now expects UK inflation to reach around 5% by the middle of next year, more than double its 2% target.

What happened, in one answer

The Bank of England lifted Bank Rate by 25 basis points to 4%. Eight members backed the quarter-point move. The lone dissenter, Catherine Mann, wanted a bigger half-point hike to 4.25%. The decision ends six consecutive holds and puts the Bank alongside the US Federal Reserve and the European Central Bank, which have also raised rates in response to energy supply disruption from the Iran war, now in its ninth month.

Why the Bank acted now

UK CPI inflation rose to 3.5% in September, well above the 2% target. The Bank said higher energy prices will keep feeding into household and business bills. Inflation now peaks at an average of 4.8% in the second quarter of next year, around 5% in the middle of the year. In a worse scenario, where oil peaks near $130 a barrel, it could reach 6.2% in the third quarter of 2027.

Governor Andrew Bailey signalled this should not be read as the start of an automatic long sequence, but also that it is unlikely to be the last increase unless the Middle East conflict is resolved. Deputy Governor Clare Lombardelli said there is likely to be a case for a further increase in the near term if inflation pressures do not weaken. Mann, in the minutes, warned of “non-linear inflation risks” and a possible loss of confidence if the Bank moved too slowly.

Why it is blowing up in markets

The hike itself was widely expected. The surprise was the tone. Traders had expected a possible 7-2 split with dissenters voting to hold. Instead the only dissent was for a larger hike, which made the decision more hawkish than markets had priced. That pushed traders to add to bets on further tightening: around 76 basis points of additional rises are now priced by the end of 2027, up from roughly 67 basis points before the decision.

Gilt yields rose about 2 basis points from pre-decision levels. The benchmark 10-year gilt was around 5.148% to 5.159%, and the rate-sensitive two-year yield rose around 2 basis points to about 4.76%. The pound was little changed to slightly firmer, trading around $1.347, after the Bank’s trade-weighted measure of sterling had earlier hit its highest since around the 2016 Brexit referendum. London’s FTSE 100 trimmed some gains but was still up about 0.7% at 10,899.90, with rate-sensitive sectors such as real estate under pressure.

The growth picture complicates the call

This was not a hike into a collapsing economy. The Bank revised up its growth forecasts to 1.6% this year and 1.3% next year, stronger than the Office for Budget Responsibility predicted last week. That resilience gave policymakers room to focus on inflation, but higher borrowing costs now land on mortgages, business loans and government debt at a time when the new prime minister, Andy Burnham, has sought to ease cost-of-living pressures.

For households, the practical effect depends on the product. Tracker mortgages move directly with Bank Rate, so a tracker rate rises by 0.25 percentage points. Fixed deals and savings rates respond more to market expectations for future rates, which is why the hawkish vote and the warning of more hikes matter beyond today’s single move.

What happens next

Markets will watch upcoming inflation and wage data and any change in oil prices for clues on timing. One strategist quoted after the decision expected at least one further hike, probably in February. If energy prices keep falling, the case for more hikes could soften; if the conflict continues, the Bank has made clear another rise is on the table. This report describes what happened and how markets reacted; it is not a recommendation to buy, sell or hold any asset.

Sources

Reuters — Bank of England raises rates for first time since 2023, says more may come
Reuters — Instant view: first rate hike in three years, gilt yields rise
Business Live — Interest rates rise to 4% as Bank forecasts inflation rising to 5%
MoneySavingExpert — Bank of England hikes base rate to 4%
London Stock Exchange / Reuters — UK bond yields rise after BoE hikes rates

FAQ

What did the Bank of England decide on November 5, 2026?

It raised Bank Rate by 25 basis points to 4% from 3.75%, voting 8-1. It was the first increase since August 2023, after six consecutive holds.

Why did the Bank raise rates?

Inflation rose to 3.5% in September and is forecast to reach around 5% by the middle of next year, driven largely by higher energy prices linked to the US-Iran conflict. The Bank judged the inflation pressure in the pipeline was now sufficient to act.

Will there be another rate hike?

The Bank warned at least one more increase is likely if the conflict continues and inflation pressures do not weaken. Markets increased their bets to around 76 basis points of further tightening by the end of 2027.

How did markets react?

Gilt yields rose about 2 basis points, with the 10-year around 5.15% and the two-year around 4.76%. The pound was little changed around $1.347, and the FTSE 100 trimmed gains but stayed up about 0.7%.