Bank of England raises rates to 4% as inflation seen peaking near 5%

A quarter-point rise to 4%

The Bank of England's Monetary Policy Committee raised its base rate by a quarter point, from 3.75% to 4%, on 5 November 2026. It is the first increase since August 2023 and pushes up the cost of borrowing for mortgages, loans and credit cards. The vote split 8-1 in favour, although early coverage described the decision as unanimous. The rise was widely expected, but before Donald Trump launched Operation Epic Fury in February the nine-member committee had been expected to lower rates this year. The decision came a week after John Healey presented his first budget, which pledged households relief after months of pressure from the conflict.

Energy costs and inflation

Consumer price index inflation reached 3.5% in September, the highest in 11 months and well above the Bank's 2% target. The conflict in the Middle East has pushed petrol and diesel prices sharply higher, and the closure of the Strait of Hormuz has choked off supplies. Brent crude had been consistently above $100 a barrel for two months, but oil prices fell sharply after the Democrats' midterm election victories. Ofgem's energy price cap rose 3.6% for a typical household on 1 October and is forecast to climb a further 22% in January. Inflation has risen less sharply than feared, yet it is expected to keep rising into the new year.

Forecast and other central banks

The Bank now expects inflation to peak at around 5% next year, compared with a previous projection of 3.2%. Policymakers indicated that another increase may be on the table. The Federal Reserve, the European Central Bank and the Bank of Japan have also started raising rates as inflation soars. The committee has nine members, and eight of them voted for the increase.

Mortgages and borrowers

Borrowers on variable deals will see their monthly repayments rise almost immediately after the increase. Fixed-rate deals behave differently, since they are shaped mainly by financial markets' expectations of future rates, and lenders may already have priced the rise in. Moneyfacts put the average two-year fixed mortgage at 5.97% at the start of November and the average five-year fix at 6%. Official data shows around 2.3 million more households come off fixed deals by the end of 2027, and more than 2 million mortgage borrowers are due to refinance fixed-rate deals over the next year.

Two-year fixed5.97%

Five-year fixed6%

Two-year fixed

5.97 %

Five-year fixed

6 %

Data from the article text

David Hollingworth, associate director at mortgage broker L&C Mortgages, said fixed rates depend heavily on market sentiment.

“It highlights just how reliant fixed rates are on market sentiment and where rates may be heading, rather than the current level.”

Savers and employers

For savers, a higher Bank rate can mean better returns on new products, although loyalty is penalised. Rachel Springall from financial information service Moneyfacts said savers with £20,000 in closed accounts lost £139 over three years compared with easy access accounts on sale. She also said fixed-term deals, which lock money away for longer, usually pay more. Firms say higher rates restrict hiring and pay rises, while borrowing to invest becomes more expensive. Mitchell Barnes, founder and chief executive of Ryse 3D, a company that produces 3D components for the defence and auto industries, expects the squeeze to drive more automation.

“It's going to cause issues with, I suppose, employment across all sectors for people.”