Bank of England raises interest rates to 4% and warns inflation could near 5%

The Bank of England has raised interest rates for the first time in more than three years and warned that inflation could climb to around 5% by the middle of next year.

On Thursday 5 November, the Bank's Monetary Policy Committee (MPC) raised Bank Rate by 0.25 percentage points, from 3.75% to 4%. Eight of the committee's nine members voted for the rise. The ninth wanted a bigger rise, to 4.25%.

It is the first time the Bank has raised borrowing costs since August 2023.

Energy prices behind the rise

The Bank said the main reason for the decision was energy. Oil and gas prices have risen since fighting broke out again in the Middle East, and that feeds into household energy bills, petrol and diesel, and food.

In a video explaining the decision, Governor Andrew Bailey said enough inflationary pressure from higher energy prices was now building that a rise in Bank Rate was justified.

In its November Monetary Policy Report, the Bank forecast that inflation would rise to around 5% by the middle of 2027.

Figures from the Office for National Statistics show that inflation on the Consumer Prices Index was 3.5% in the 12 months to September 2026, up from 3.1% in August. The Retail Prices Index, which is still used for some rail fares and other price rises, stood at 3.9% in September.

The Bank's target is 2%. It has not said when it expects inflation to fall back to that level. It said it would look at the evidence at each meeting, in particular how far high energy prices spread to other prices and the wider economy. It will watch pay, how businesses set prices and how much spare capacity there is in the economy.

What it could mean for households

Borrowing is likely to cost more. Tracker mortgages follow Bank Rate directly, so monthly payments on those deals are expected to go up soon. Lenders often move standard variable rates in line with Bank Rate too, but they decide for themselves.

People whose fixed-rate mortgages end in the coming months may have to take new deals at higher rates than they had hoped. Rates on loans and credit cards may also go up.

Savers may see slightly better returns, though banks and building societies choose whether and when to pass on the rise.

With the Bank expecting inflation to keep rising until next summer, energy, fuel and food prices are likely to keep going up into 2027. That means more pressure on family budgets in Southall, Hayes, Ealing, Hounslow and the rest of West London.

What happens next

The MPC will look at Bank Rate again at its next scheduled meeting. The Bank has said it will keep rates as high as needed to bring inflation back to target. It has not said whether more rises will follow.

People worried about mortgage payments or other debts are advised to speak to their lender early. They can also get free, independent advice from services such as MoneyHelper and Citizens Advice.