Bank of England raises Bank Rate to 4% by 8-1, with energy prices pushing inflation toward 5%

The Bank of England raised Bank Rate by 0.25 percentage point to 4% on Thursday, ending the hold at 3.75% that three members had voted against in September, according to the Bank's November monetary policy summary. The Monetary Policy Committee (MPC) voted 8–1; the one dissent was for a larger move.

The decision follows the vote the three dissenters set up in September, as FinanceInTime reported before the meeting.

A 6-3 hold became an 8-1 rise in seven weeks

At its meeting ending on September 16, the MPC voted 6–3 to hold Bank Rate at 3.75%, with three members preferring 4%, the September summary says. At the meeting that ended on November 4, eight members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Huw Pill, Dave Ramsden and Alan Taylor) voted for 4%.

Catherine Mann voted for a 0.5 percentage point rise, to 4.25%. Her written rationale says projected CPI inflation reaches 4.9% by mid-2027.

Energy prices carry the Committee's case

The Committee's summary says the conflict in the Middle East "is now in its ninth month" and that UK consumer price inflation, 3.5% in September, "is now expected to rise to around 5% by the middle of next year." It is then projected to fall as the effect of higher energy prices on 12-month rates fades.

The minutes put numbers on the energy move. Front-month Brent crude futures averaged $108 per barrel over the 15 UK working days ending October 27, which the minutes say was 38% above the level at the time of the July Monetary Policy Report. UK front-month natural gas futures averaged 216 pence per therm, 81% above that level.

Bank staff's near-term projection is for headline CPI inflation of around 4½% in the first quarter of 2027 and around 5% in the second quarter. The minutes add that Budget measures announced on October 28 were expected to lower CPI inflation by ¼ percentage point by the second quarter of 2027.

Why the majority moved now, and what it did not claim

The summary says "there remains limited evidence of knock-on effects on other prices and wages", but that "the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate." It also says activity data in recent months were "stronger than expected."

The minutes record that benchmark two-year mortgage rates had risen by nearly 50 basis points since the start of September. They also record that the Bank's Market Participants Survey expected Bank Rate of 4% in November and 4.25% in February.

The Committee did not commit to a path. Its summary says "Monetary policy is not on a pre-set path."

What individual members wrote about the next step

Members' written rationales differ on whether one rise is enough. Huw Pill wrote that "a single 25-basis point hike is unlikely to be sufficient" and that the required stance "is likely to require more policy tightening, including in the near term." Clare Lombardelli wrote that "there is likely to be a case for a further increase in rates in the near term" if there is no evidence of weaker inflation pressures.

Bailey's rationale does not name a next step. It says indirect and second-round effects "have not emerged yet."

A rise the Committee itself calls conditional

We read this as a rise the Committee has made conditional on energy. Its central projection assumes downward-sloping energy futures, and Bailey wrote that it requires "an alleviation of the factors that have pushed up energy prices" to be validated. If Brent and gas stay near the October averages, we expect the Bank to move again within the next few meetings, as Pill and Lombardelli's wording suggests; if futures fall, the pause the majority has left room for becomes more likely.

The threat is mortgage and business borrowing costs rising while real incomes are squeezed by energy bills. The opportunity is that a quick response may keep second-round effects, which the Committee says have not yet emerged, from taking hold. We would watch pay settlements and services inflation, not headline CPI, to judge whether the rise was enough, and we would change our view if wages accelerate while energy prices ease.

The view in this final section is FinanceInTime's editorial opinion, for information only. It is not investment, tax, legal or other advice, and it does not take your circumstances into account. Forecasts are uncertain and past results do not guarantee future ones.