Bank of England raises rate to 4% for first time since 2023

The Bank of England raised its benchmark interest rate to 4 percent on November 5, its first increase in more than three years, as higher energy costs added to inflation pressure.

The central bank lifted borrowing costs by a quarter point from 3.75 percent, where the rate had stood since December. It last raised its key rate in August 2023.

The BoE said UK inflation could reach 6.2 percent in the third quarter of next year in a worst-case scenario in which oil prices rise far beyond $100 a barrel because of the Middle East conflict. Its central forecast is for inflation to peak at 4.9 percent in the second quarter of next year, compared with 3.5 percent now.

Governor Andrew Bailey said there was now enough inflationary pressure from the rise in energy prices to warrant a higher Bank Rate. He said the increase should not be seen as the first in an inevitable long series of rises, but added that it was unlikely to be the last increase unless the Middle East conflict is resolved.

The bank also upgraded its UK growth forecasts, estimating gross domestic product growth of 1.6 percent this year and 1.3 percent next year. In July, it had forecast 1.1 percent growth for both years. The BoE said the revision was driven by strength in business investment, partly reflecting AI-related demand.

Millions of Britons face a rise in energy bills from the start of 2027, even after government assistance announced in the annual budget last week.