Bank of England lifts base rate to 4% as Iran war drives inflation fears

The Bank of England has raised its base rate from 3.75% to 4%, its first increase in more than three years, as the Iran war drives up energy costs and threatens to lift inflation. The move is likely to increase borrowing costs for mortgage holders and comes a week after the government promised measures to ease pressure on household budgets.

Eight of the nine Monetary Policy Committee members backed the quarter-point rise; Catherine Mann wanted a half-point increase. The Bank now forecasts inflation will reach 4.9% by mid-2027, compared with its previous forecast of 3.2%, and expects energy bills and food prices to rise. Governor Andrew Bailey said another increase may follow if the conflict continues, though he cautioned that a long series of rises is not inevitable; the next decision is due on 17 December.