Bank of England raises rates as inflation risks intensify
The Bank of England raised interest rates for the first time in over three years on Thursday, warning that inflation could reach 5.0% next year as the prolonged conflict in the Middle East continues to drive up energy prices.
The Monetary Policy Committee voted by 8-1 to increase bank rate by 25 basis points to 4.00% from 3.75%, with Catherine Mann favouring a larger increase of 50 basis points to 4.25%.
It was the bank's first interest rate raise since August 2023.
The central bank said UK consumer price inflation, which rose to 3.5% in September, is now expected to reach around 5.0% by the middle of 2027, before easing as energy price pressures fade and restrictive monetary policy weighs on inflation.
The BoE noted that global energy prices have continued to rise, while UK economic activity has proved more resilient than expected, strengthening the case for tighter monetary policy.
Although there has been limited evidence of higher energy costs feeding through into broader prices and wages, the MPC warned that the risk of persistent inflationary pressures has increased.
"Monetary policy is not on a pre-set path," the committee said, adding that future decisions would depend on inflation developments, wage growth and economic conditions.
Governor Andrew Bailey said a further rate increase was unlikely to be avoided if the Middle East conflict remained unresolved, although he cautioned against viewing a sustained cycle of rate rises as inevitable.
The BoE's next interest rate decision is scheduled for December 17.
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