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Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5%
Developing story first seen 2 hours ago
The Bank of England has raised its key interest rate by 0.25 percentage points to 4%, its first increase since August 2023. It warned inflation could approach 5% as the Iran war drives up energy costs, adding pressure on households and businesses through higher borrowing costs.
The Monetary Policy Committee voted 8 to 1 for the increase; the sole dissenter, Catherine Mann, favoured a larger rise of 0.5 percentage points, arguing inflation risks could become self-reinforcing. The Bank expects inflation to reach about 5% by mid-2027 before easing as energy price effects fade. Annual UK inflation was 3.5% in September, with motor fuels a major driver, and Governor Andrew Bailey said further rate rises could be considered depending on energy prices and inflation.
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In short
- Bank Rate rises by 0.25 percentage points to 4%.
- The Bank warns inflation may approach 5%.
- One committee member argued for a larger increase.
How this story developed
- 2 minutes ago The Bank of England has raised its key interest rate by 0.25 percentage points to 4%, its first increase since August 2023. It warned inflation could approach 5% as the Iran war drives up energy costs, adding pressure on households and businesses through higher borrowing costs.
- 1 hour ago The Bank of England raised its key interest rate by 0.25 percentage points to 4%, its first increase since August 2023.
Full account
The Bank of England has raised its main interest rate for the first time since the Iran war began, as it warned that UK inflation could reach about 4.9 per cent next summer. The decision reflects concern that higher energy costs will feed through to prices across the economy, even though policymakers said there was limited evidence so far of those effects accelerating sharply.
Governor Andrew Bailey said the outlook depended heavily on developments in the Middle East. If there was no progress towards resolving the conflict, he saw a case for another increase in rates, followed by decisions guided more closely by evidence on energy prices and inflation. The UK’s reliance on imported energy leaves it exposed to external price shocks. Annual inflation had already risen to 3.5 per cent in September, with motor fuel costs a prominent driver.
The committee’s statements suggested that several members remained open to further tightening, although they differed over how forcefully to act. Catherine Mann argued for a 0.5 percentage-point increase, saying the risk of persistent inflation and damage to the Bank’s credibility justified a stronger response. The other report describes the committee as having voted unanimously for a rise, while noting Mann’s preference for a larger move; it also identifies Alan Taylor as favouring a single increase, with other members signalling that more could follow.
The Bank’s forecast places inflation around 1.5 percentage points above its July projection, reaching 4.9 per cent next summer. That outlook rests partly on the expectation that businesses will pass higher energy and other costs on to customers, potentially influencing wage negotiations as well as prices. The reports differ in emphasis: one focuses on Bailey’s warning and Mann’s case for a larger rise, while the other highlights the unexpected unity behind the decision, the range of views on future moves and the absence, so far, of clear evidence that price pressures are spiralling. It also notes that falling oil and gas prices had not removed market expectations of further increases.
Where outlets differ
From the full account, which is AI-written from the sources:
The first report centres on the November Monetary Policy Report, Bailey’s conditional case for another rise and Mann’s argument for a 0.5 percentage-point increase. The second gives more attention to the committee vote, forecasts of further tightening and Alan Taylor’s view that the rise may be a one-off.
The second report says the committee voted unanimously to raise rates, while Mann wanted a larger increase; the first supplies Mann’s rationale but does not describe the vote or other members’ positions.
The second report says the Bank sees limited evidence of current price effects spiralling, while stressing its concern about costs being passed on later. The first concentrates on the inflation risks arising from the conflict and the possibility of second-round effects.
Centre outlets 1
- Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5%CNBC
Only here: time, since, iran, warns, near
Right-leaning outlets 2
- Why the Bank of England’s united interest rate hike signals more to comeCity AM
- Bank of England hikes interest rates to four per cent as inflation set to spikeCity AM
Only here: united, hike, signals, come, rates
Every side used: bank, england, hikes, interest, rate, inflation
Headline columns compared word for word; nothing in them is AI-written.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Raising rates can help prevent an energy-driven price shock from spreading into wages and wider prices, which could make inflation more persistent and harder to bring down. Acting now may protect the pound’s purchasing power and reassure households and businesses that the Bank remains committed to its inflation target.
The case against
Higher rates make mortgages, loans and business finance more expensive, adding pressure for households and firms already facing elevated energy costs. Since the inflation rise is being driven by global energy prices, which UK interest rates cannot directly control, a rate increase may curb demand and employment without quickly easing the source of the price shock.
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