Bank raises rates to 4% and warns inflation will near 5%
The Bank of England raised Bank Rate by a quarter point to 4% on Thursday, its first increase since August 2023, by eight votes to one; Catherine Mann wanted a half-point rise to 4.25%. The committee now expects inflation, 3.5% in September, to reach around 5% by the middle of next year as energy prices feed through, before falling back. “Monetary policy is not on a pre-set path,” it said.
The minutes say the Middle East conflict, now in its ninth month, pushed Brent to an average of $108 a barrel and UK gas to 216p a therm over the fortnight to 27 October, 38% and 81% above July’s assumptions. There is “limited evidence of knock-on effects on other prices and wages”, but “the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase”, and activity has been stronger than expected. Andrew Bailey said the rise “should not be seen as the first in an inevitable long sequence of hikes”, but that unless the Middle East conflict is resolved “neither does it seem likely to be the last increase”; Megan Greene said “additional hikes will likely be required”. For the 510,000 households on tracker mortgages the rise adds about £31 a month on a typical loan, UK Finance calculates, and about £14 for the 470,000 on standard variable rates once lenders pass it on; 87% of borrowers are on fixed deals and feel nothing until they remortgage. Markets had priced the move at 99.96%; the pound reached its strongest level since 23 June 2016 on the Bank’s index.