November 5, 2026
The Bank of England raised Bank Rate by 0.25 percentage point to 4% on Thursday, its first increase in more than three years, as policymakers moved to keep the energy shock from the war between the US and Iran from becoming entrenched in UK inflation. The Monetary Policy Committee voted 8–1 at the meeting that concluded on 4 November, according to the Bank's summary and minutes.
The make-up of the vote carried the surprise. The lone dissenter, external member Catherine Mann, backed a half-point increase to 4.25%, while forecasters had expected any opposition to come from members favoring a hold. Markets had priced a quarter-point move as close to certain before the meeting, which left the split and the guidance as the main news.
The committee said the conflict in the Middle East is now in its ninth month and that global energy prices have kept rising from an already elevated level. UK consumer price inflation climbed to 3.5% in September, and the Bank now expects it to peak at an average of 4.8% in the second quarter of 2027, more than double its 2% target. The minutes showed the forecasts were conditioned on Brent crude futures averaging $108 a barrel and UK natural gas futures averaging 216 pence per therm over the 15 working days to 27 October.
Bailey said that, absent news that softens the inflation risks, he could see the argument for a further increase, followed by a more conditional approach dependent on energy prices and inflation dynamics. He also said Thursday's move should not be read as the first in a sequence of hikes, and the Bank stressed that policy is not on a pre-set path. The decision puts the UK alongside the Federal Reserve and the European Central Bank, both of which have tightened in response to energy supply disruptions tied to the war.
Gilts sold off modestly as traders added to bets on further tightening. The rate-sensitive two-year yield rose about 2 basis points to around 4.76%. An analyst at In Touch Capital Markets said market odds of a December hike moved from about one in four to closer to even, with three further increases priced through September 2027. Before the meeting, Barclays had flagged the risk of a so-called dovish hike from a central bank facing market pricing for a terminal rate near 5%.
Sterling's reaction was muted. The pound edged up to about $1.3477 from roughly $1.3453 earlier in the session and firmed slightly to 83.25 pence per euro. The small move suggests much of the hawkish tilt had already been reflected in the currency, with the vote split and Bailey's comments only marginally shifting expectations.
Views differ on how far the Bank will go. Felix Feather of Aberdeen said he expects at least one more hike, most likely in February. ING also sees a follow-up move in February as probable but described market pricing for further increases as looking extreme. The Bank's own Market Participants Survey showed the median expected path for Bank Rate reaching 4.25% in February, still below the level implied by the short-term interest rate curve. The minutes put the stock of gilts held for monetary policy purposes at £362 billion as of 4 November.
The Office for National Statistics publishes its first estimate of third-quarter GDP on 12 November, followed by October consumer price data at 07:00 UK time on 18 November. The next MPC decision is due on 17 December, with markets seeing roughly even odds of another increase. Several analysts view 4 February 2027, when the Bank publishes its next Monetary Policy Report, as the more likely date for a second hike.
Beyond the data calendar, attention will turn to the energy price cap set by Ofgem, which is due to rise in January, and to the 2027 pay round. The committee identified wage settlements as the main channel through which higher energy costs could spill over into broader and more persistent inflation, and any sign of de-escalation in the Middle East would bear directly on the energy assumptions behind the Bank's forecasts.
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