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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 1 hour 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
- 6 minutes ago The Bank of England raised its key interest rate by 0.25 percentage points to 4%, its first increase since August 2023.
- 6 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.
Where outlets differ
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- Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5%CNBC
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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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