Bank of England lifts rates to 4% and hints another rise could follow

The Bank of England has raised interest rates for the first time in more than three years, taking the base rate from 3.75% to 4%. And its governor says this may not be the last rise.

What happened?

Eight of the nine members of the Bank's monetary policy committee (the group that sets rates) voted for a quarter-point rise. The ninth, Catherine Mann, wanted a bigger half-point jump.

The reason is inflation. The Iran war has kept oil prices above $100 a barrel for months, as hopes faded of a deal to reopen the strait of Hormuz. The Bank now expects UK inflation to hit 4.9% by the middle of next year. Its forecast in July was 3.2%, and the figure was 3.5% in September.

If you have a mortgage, this decision will hit you. It also lands a week after John Healey's first budget, which promised "breathing space" for struggling households.

Why is everyone talking about it?

Because costs are already squeezing people. The committee expects real post-tax income to fall this year and next. It also expects the Ofgem energy price cap (the limit on household energy bills) to rise from the equivalent of £1,723 a year to £2,150 in January, then rise again in April. Food price inflation could reach 4.75% by mid-2027.

Governor Andrew Bailey said the rise "shouldn't be seen as the first in an inevitable long sequence" of hikes. But he added that unless the Middle East conflict is resolved, it doesn't seem likely to be the last. Oil has dropped below $100 in the past two days, which he called positive. He said it would need to last to change his view.

The committee is split on what comes next. Alan Taylor called this a "one-for-now" insurance hike. Mann argued a bigger move was needed to protect the Bank's credibility on inflation.

Healey said the Iran conflict is reaching "deep into the pockets of families". He pointed to a £100 energy payment for 20 million households and the frozen fuel duty. Shadow chancellor Andrew Griffith called the rise "another headwind for hardworking families".

What's next?

The next decision is due on 17 December. Some analysts think a pre-Christmas rise is possible. Oxford Economics' Andrew Goodwin says another hike in December or February is likely.

Remind me: what came before?

The Bank raised rates to 5.25% in August 2023, the highest since 2008. It cut them for the first time since 2020 in August 2024. Now the direction has flipped again.