Bank of England hikes to 4% and says inflation will near 5%, with one vote for a bigger move

The Bank of England raised its benchmark Bank Rate by a quarter of a point to 4% on Thursday, its first increase since 2023, after its Monetary Policy Committee voted 8 to 1. The one dissenter, according to the Bank's own summary and minutes, wanted a half-point rise to 4.25%. Rates had been held at 3.75% in July and September. The New York Times and Reuters both reported it as the first hike in three years.

The number behind the number: 5%

UK consumer price inflation was 3.5% in September, and the committee now expects it to climb to around 5% by the middle of next year before falling back. Bank staff put the near-term path at around 4.5% in the first quarter of 2027 and around 5% in the second, about 1.25 percentage points above what they projected in July for the first quarter.

The cause is energy, not a booming economy. The minutes say the front-month Brent futures contract averaged $108 a barrel over the 15 working days to October 27, 38% higher than at the time of the July report, and UK natural gas futures averaged 216 pence per therm, 81% higher. The Bank calls the conflict in the Middle East "now in its ninth month." Direct energy effects contributed about 1 percentage point of the September inflation rate, mostly from fuel.

A hike with an asterisk

The statement is careful about what the Bank has not seen. It says there is "limited evidence of knock-on effects on other prices and wages," and that policy "is not on a pre-set path." The case for acting rests on the pressure "in the pipeline," plus activity data that came in stronger than expected. The minutes record that many firms are absorbing higher costs by accepting lower profit margins, a cushion the committee judged would "only prove temporary."

That helps explain the split. One member's written reasoning calls the move a "one-for-now" insurance hike and warns the next step "could be up, down, or sideways." Another, Catherine Mann, argued that a 0.5-point move was "good policy" because projected inflation near 4.9% by mid-2027 puts the economy past what she called a credibility threshold.

Who feels it

The Bank's minutes note that benchmark two-year mortgage rates in the UK had already risen by nearly 50 basis points since the start of September, as markets priced this move in. So a UK firm on a floating-rate loan or a household coming off a fixed deal is absorbing the increase in two steps: first the market repricing, now the policy rate itself.

For a US business owner the transmission is narrower but real:

• Exporters selling into the UK invoice customers whose borrowing costs and energy bills are both rising. The Bank itself says it expects the UK economy to slow, with GDP growth likely to "fall back somewhat" in the coming quarters.
• Importers paying in pounds face a currency that has been firm. The ECB's reference rate was $1.3459 per pound on Thursday, against $1.3500 on Wednesday and $1.3288 on October 28, which is about 1.3% higher over the week, according to the Frankfurter API. That is a reference-rate snapshot, not a trading quote.
• Anyone with a floating-rate line at home should note the pattern: two major central banks are now fighting the same energy-driven inflation from different starting points.

How it compares with the Fed

The Federal Reserve held its policy range at 3.75% to 4% on October 28, as we reported in our coverage of that decision. Bank Rate at 4% now sits level with the top of that range. On Thursday, Fed officials Hammack and Barkin argued for hiking in small steps, which we covered in our story on their speeches. The Bank of England's next decision is due December 17, according to its own calendar.

What to watch

The Bank says further moves depend on energy prices, underlying pay, pricing behaviour and slack, particularly the 2027 pay round. If oil keeps sliding, as it has this week, the "insurance" framing gets harder to argue against. If it rebounds, the dissenter's half-point case looks less eccentric. Track the dollar side on our markets page.

Sources: Bank of England Monetary Policy Summary and Minutes, November 2026; The New York Times; Reuters; Frankfurter API (ECB reference rates); Yahoo Finance price history. This is market information, not investment advice.