The Bank of England has raised the cost of borrowing, as forecast, by 0.25 percentage points to 4%, the first rise in three years.
The nine-member monetary policy committee voted by 8-1 for an increase and financial markets are still pricing in three further rate hikes by the end of next year. One member voted to increase Bank Rate by 0.5 percentage points, to 4.25%.
This is the first rise since 3 August 2023 when Bank Rate was raised to 5.25% and had been strongly signalled.
Consumer price inflation jumped to 3.5% in September, up from a mid-year low of 2.6% in June, taking it well above the official 2% target.
In its minutes, the Bank said: “Global energy prices have continued to rise from an already elevated level. UK CPI inflation increased to 3.5% in September.
“It is now expected to rise to around 5% by the middle of next year. It is then projected to fall as the impact of rising energy prices on 12-month inflation rates fades, and still restrictive monetary policy bears down on inflation.”
Andrew Bailey, the Bank’s governor, said the decision “shouldn’t be seen as the first in an inevitably long sequence of hikes”, but warned “unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase”.
Joe Nellis, head of economic research at MHA, the accountancy and advisory firm, said: “The battle against inflation has entered a new and more challenging phase as we head towards 2027.”
Chancellor John Healey said: “The Iran conflict is reaching deep into the pockets of families and businesses here at home.
“In my Budget I acted to give some breathing space to families and businesses. Twenty million households will get a £100 energy payment, I extended the tax cut on electricity bills and froze fuel duty.
“I also set out the course ahead to get costs down for good. That includes big changes to our energy system so Britain is better protected from global shocks in the future.”
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