BoE Raises Rates for 1st Time Since 2023

The Bank of England voted by a majority of 8-1 to raise the key bank rate by 25bps to 4% in November 2026, in line with expectations. It is the first increase in borrowing costs since August 2023, with one policymaker, Catherine Mann, voting for a hike of 0.5 percentage points to 4.25%. UK inflation is now expected to rise to around 5% by the middle of next year from the current 3.5%. It is then projected to fall as the impact of rising energy prices fades, and still restrictive monetary policy bears down on inflation. In addition, activity data in recent months have generally been stronger than expected, adding to the case for modestly tighter monetary policy. Policymakers added that monetary policy is not on a pre-set path and the Committee will continue to assess the evidence at each meeting and will adjust Bank Rate as necessary to ensure CPI inflation returns to the 2% target in the medium term.

The Bank of England is widely expected to raise interest rates by 25 basis points to 4.00% at Thursday’s Monetary Policy Committee meeting, which would mark its first increase since August 2023. Markets are pricing in a probability of more than 96%, with analysts anticipating a 7–2 vote in favour, although external members Swati Dhingra and Alan Taylor are expected to support holding rates steady. The expected move follows an acceleration in UK inflation, with CPI rising to 3.5% in September from 3.1% in August, while services and core inflation also remain elevated, reinforcing concerns about persistent domestic price pressures. However, uncertainty remains over whether the increase will be a one-off defensive measure or the beginning of a broader tightening cycle. Although markets have considered further hikes towards 4.75% or higher next year, Governor Andrew Bailey’s comments and the updated Monetary Policy Report will be key to assessing the Bank’s future policy path.

The Bank of England’s Monetary Policy Committee voted 6–3 to keep Bank Rate unchanged at 3.75% at its September 16, 2026 meeting, in line with market expectations. Three members preferred a 25-basis-point increase to 4%, the same as at the July meeting. The MPC said prolonged conflict in the Middle East has pushed crude and refined energy prices higher and increased volatility, contributing to a rise in UK CPI inflation to 3.1% in August, with further increases expected in coming quarters. The Committee stressed that policy must ensure inflation returns sustainably to the 2% target while assessing the scale and duration of the energy shock. So far, there is limited evidence of significant second-round effects on wages and prices, although the risk could increase if energy costs remain elevated. The MPC also unanimously agreed to reduce its stock of government bond purchases to zero through a multi-year programme, unwinding holdings at an average annual pace of £46 billion through 2034.