Macro
Bank of England raises Bank Rate to 4% in 8-1 vote, warns inflation will near 5% by mid-2027
The Monetary Policy Committee delivered its first increase since August 2023, with one member pushing for a larger half-point move.
HedgeWeekly News Desk ·
The Bank of England lifted Bank Rate by 0.25 percentage points to 4% from 3.75% on Thursday, its first rise since August 2023. Eight of the nine Monetary Policy Committee members backed the quarter-point move. Catherine Mann voted for a larger half-point increase to 4.25%.
The Bank expects consumer price inflation to climb to about 5% by mid-2027, driven mainly by energy costs linked to the conflict in the Middle East. UK inflation stood at 3.5% in the 12 months to September, up from 3.1% in August. The committee said inflation should ease once higher energy prices drop out of annual comparisons and tighter policy takes effect, and that second-round effects have so far been limited.
Governor Andrew Bailey said the hike should not be read as the start of an inevitable long run of increases, but that without progress towards ending the conflict, it is unlikely to be the last. Markets had priced a hike at better than 99% before the announcement, so reaction was muted: the FTSE 100 was about 0.6% higher during the afternoon, gilt yields edged up, and sterling's effective exchange rate index reached its strongest level since the 2016 Brexit referendum. Traders put roughly a one-in-four chance on another rise at the next meeting on 17 December, according to LSEG data cited by CNBC.
For funds and allocators, the guidance is conditional rather than a pre-set path, which ties UK rate expectations to energy prices and the Middle East. Economists quoted by MoneyWeek, including those at Deutsche Bank and Oxford Economics, point to a further move to 4.25% in December or February. Moneyfacts estimates the rise adds about £37 a month to a £250,000 tracker mortgage, and analysts flagged higher borrowing costs as a headwind for smaller UK companies. Watch October inflation data and oil prices before 17 December.