Bank of England Delivers First Rate Hike Since 2023 Amid Rising Inflationary Risks

08:54 AM EST, 11/05/2026 (MT Newswires) -- The Bank of England increased its key rate for the first time since August 2023, citing the need to guard against second-round effects amid higher inflationary risks due to the continued war in the Middle East. The UK central bank on Thursday lifted the bank rate by 25 basis points to 4%, as widely expected. Its Monetary Policy Committee voted 8-1 in favor of a hike, with the lone dissenter, Catherine Mann, voting to increase the bank rate by 50 basis points to 4.25%, noting that an "activist" approach was necessary from a risk management and credibility perspective. "While the direct effects of higher energy prices are clear, and will continue to feed into firm and household energy bills, there remains limited evidence of knock-on effects on other prices and wages. However, the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate," the BoE said. "Activity data in recent months have generally been stronger than expected, adding to the case for modestly tighter monetary policy." The committee said the risk of stronger inflationary pressure is now higher, compared with that during its previous meeting in September, as energy prices continue to soar due to the conflict. "The central projection and weaker demand scenario require an alleviation of the factors that have pushed up energy prices to validate the slope of energy futures curves. Put simply, it requires real progress towards settling the conflict in the Middle East. Absent this, risks to energy prices, and so to inflation, are to the upside. In view of the news, the case is clear for a 25-basis point rise now," BoE Governor Andrew Bailey said. "Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates and thereafter taking a more conditional approach, dependent on the evidence on energy prices and inflation dynamics." Based on the latest government data, the UK's annual inflation rate rose to 3.5% in September from 3.1% in August, with the core rate edging up to 2.8% from 2.6%. The BoE's medium-term inflation target stands at 2%. "The Bank of England has raised interest rates to 4%, and we expect one further rate hike by February. A renewed spike in energy prices could bring that forward to December. However, we're still sceptical that the Bank will need to hike more than once more," ING said in a quick take note. "We're still comfortable calling for 50bp worth of tightening in total. That seems consistent with the views of the committee at this meeting. Markets are still pricing roughly four hikes over the next year, but more controversially still, aren't really pricing in any cuts thereafter. We think there's still a good chance rate cuts begin towards the end of 2027 or early 2028, eventually taking rates back down towards 3.25%."