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United Kingdom

Bank of England raises interest rates to 4% in first hike since 2023

The rate rise will lift borrowing costs for mortgages and loans as the central bank tries to curb inflation driven by energy prices.

Photo: BBC

What happened

The Bank of England raised its key interest rate by 0.25 percentage points, from 3.75% to 4%, its first increase in more than three years. BBC+2 The decision was taken by an 8-1 vote, with one member voting for a larger increase of 0.5 percentage points to 4.25%. xtb.com The increase will push up the cost of borrowing for mortgages, loans and credit cards, while offering a boost to savers through higher returns. BBC The move follows the conflict in the Middle East, which has disrupted energy supply and raised petrol, diesel and utility prices. BBC+1

Around it

Consumer price inflation rose to 3.5% in the year to September, up from 3.1% the previous month and well above the central bank's 2% target. BBC+1 The Bank said the economy has been more resilient than expected, which adds to the risk that higher energy costs spread to other prices and wages. xtb.com A Bloomberg Economics study found UK rates were likely close to neutral, meaning they were neither restraining nor boosting inflation. Bloomberg A Financial Times survey of economists expects inflation to peak at an average of 4.4% in early 2027, with household energy bills set to rise by nearly £470 in January. Financial Times

What comes next

Close attention will be paid to any guidance from the Monetary Policy Committee on the future direction of interest rates. BBC Traders are pricing in further quarter-point increases in the rate by the end of next year. Financial Times

Sources

  1. BBCInterest rates hiked to 4% in first increase in over three years
  2. BloombergUK Rates Are Not High Enough to Curb Inflation, Research Finds
  3. xtb.comBREAKING: BoE raises interest rates by 25pbs to 4%⏰
  4. The IndependentIs the Bank of England set to raise interest rates and when is the announcement?
  5. Financial TimesUK inflation to peak at 4.4% in 2027, according to FT survey of economists

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