Bank expected to raise rates to 4% as pound hits post-referendum high
The Bank of England announces its decision at 12:00 GMT, and most analysts expect the first rise since August 2023, from 3.75% to 4%, after inflation climbed to 3.5% in September. Sterling has reached its joint highest level since the June 2016 referendum on the Bank’s trade-weighted index, at 86.4, and stood at $1.3495 at 04:15. A quarter-point rise adds about £31 a month to a typical tracker mortgage, UK Finance calculates.
The Monetary Policy Committee has held the rate for six meetings since it came down from the 5.25% peak of 2023–24; the rise in inflation, driven mainly by petrol and diesel since the Iran war, has cemented expectations of a move now and possibly more in 2027, the AP reports. “We imagine that many committee members’ patience with the recent rise in inflation has worn thin,” said Ellie Henderson of Investec. Chris Cheverall of CMC Markets said the decision “is increasingly less about whether rates reach 4% and more about what follows after that”; traders will study the vote split, the new projections and the guidance. A rise would reach the 510,000 households on tracker mortgages immediately and the 470,000 on variable deals once lenders respond, while savers would gain. Sterling’s strength, which Jim O’Neill attributes to investors “underestimating the improving momentum in the UK”, helps rein in inflation and cheapens imports and holidays. The FTSE 100 rose about 0.8% to 10,916 by late morning, close to its record, as ten-year gilt yields eased to 5.11%. Household energy bills are forecast to rise sharply in January.