Bank of England raises interest rates to 4% in first increase for more than three years

The Bank of England has raised its main interest rate from 3.75% to 4%, marking the first increase in more than three years

LONDON —  The Bank of England has raised its main interest rate from 3.75% to 4%, marking the first increase in more than three years as policymakers respond to mounting inflationary pressures.

The Monetary Policy Committee (MPC) voted to increase Bank Rate by 0.25 percentage points, with the decision reflecting concerns that rising global energy costs could feed through into wider price increases across the United Kingdom economy.

The Bank said inflation had risen to 3.5%, above its official 2% target, and warned that it could climb to around 5% by the middle of 2027 as higher energy prices affect household bills, transport costs and business expenses. (Bank of England⁠)

The increase is the Bank’s first rate rise since August 2023. Reuters reported that the MPC voted 8–1 in favour of the quarter-point increase, with the sole dissenting member favouring a larger rise. (Reuters⁠)

Bank of England Governor Andrew Bailey said the latest move should not necessarily be viewed as the beginning of a long series of rate increases. However, he warned that further action could be required if inflationary pressures persist, particularly if the conflict in the Middle East continues to affect global energy supplies and prices. (Bank of England⁠)

Higher interest rates could increase costs for some mortgage holders and borrowers, particularly those on variable or tracker-rate products. Businesses borrowing money may also face higher costs, while some savers could benefit if banks pass on higher rates to savings accounts.

The Bank said the increase was aimed at limiting the extent to which higher energy costs become embedded in prices and wages throughout the wider economy.

The decision will be closely watched by millions of households across the United Kingdom, particularly mortgage holders already facing significant pressure from higher living costs.