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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.
In short
- Bank Rate rises from 3.75% to 4%.
- The Iran war is driving up energy costs and inflation forecasts.
- The Bank says another increase is possible if the conflict continues.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Raising the rate may help prevent an energy-price shock from spreading into wider, persistent inflation by signalling that the Bank will act to keep prices stable. Supporters may argue that acting early protects households’ purchasing power over time and reduces the risk of needing sharper increases later.
The case against
Higher rates will raise costs for many mortgage holders and businesses, adding pressure when energy and food bills are already expected to rise. Critics may argue that interest rates cannot resolve a supply shock caused by conflict, and that tightening now risks weakening demand and employment while the price pressures may ease without it.
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Originally published by The Guardian as “Bank of England raises interest rates to 4%, the first increase for more than three years”.