Bank of England set to rise interest rates for first time since 2023
The Bank of England is widely expected to raise its key interest rate from 3.75% to 4% on 5 November, which would be its first increase since August 2023. The move would make borrowing more expensive and is being considered as inflation moves further above the Bank’s 2% target.
CPI inflation reached 3.5% in September, its highest in 11 months, amid higher fuel costs linked to conflict in the Middle East. The energy price cap rose 3.6% in October and is forecast to increase by a further 22% in January. The Bank will also weigh economic signs including 0.1% growth in August and unemployment of 4.7% in the three months to August.
In short
- A rise to 4% is widely expected on 5 November.
- September inflation reached 3.5%, above the Bank’s 2% target.
- Higher energy costs could keep price pressures elevated.
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The case for
Raising rates could help bring inflation back towards the Bank’s 2% target by cooling demand and signalling that it will act when price pressures rise. With inflation at 3.5% and energy costs expected to climb further, supporters may argue that a measured increase now could limit the risk of inflation becoming more persistent and requiring sharper action later.
The case against
Higher rates would raise the cost of mortgages and other borrowing, putting pressure on households and businesses already facing steep energy bills. With growth weak at 0.1% and unemployment at 4.7%, critics may argue that the inflation rise is largely driven by fuel and energy costs, which interest rates cannot directly reduce, and that tightening could further weaken the economy.
Explained simply
The Bank of England sets the UK’s key interest rate, which influences the cost of mortgages, loans and savings. It aims to keep inflation—the pace at which prices rise—close to 2% while supporting a stable economy.
Inflation has been above that target, with higher fuel costs among the pressures on household bills. The Bank’s rate decisions are made by a committee, which weighs price rises alongside signs of economic growth and employment.
Higher rates can help slow price rises by making borrowing more costly and encouraging people to save, but they can also weigh on spending and investment. The decision matters to households and businesses because it can affect monthly repayments, savings returns and the wider economy.
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