Bank of England raises interest rates to 4% as inflation threatens

The pressure for higher interest rates built around an energy shock and fears of more persistent inflation. The Daily Mail reported concerns that higher energy costs and inflation driven by the Middle East conflict could become embedded in Britain's economy.

For households, the immediate concern was mortgage costs. On 2 November, the Guardian reported that more than 2.3 million UK households faced a sharp increase in payments as their fixed-rate deals expired in 2027.

By 2 November, economists were expecting the Bank to act at its Thursday meeting. A survey of 35 economists conducted at the end of the previous week pointed to the first rate increase in more than three years, according to Bloomberg Economics.

The expected increase did not settle the question of what would follow. On 3 November, Bloomberg reported that traders and economists were divided over the future path of interest rates.

There was also a more reassuring signal. On 4 November, Bloomberg Economics reported that a new inflation measure developed by the Bank showed little sign yet that UK price pressures were building.

On 5 November, the Bank raised rates by a quarter percentage point to 4%. Bloomberg reported that the decision came with a warning that inflation was on track to reach almost 5% next year and a signal that another increase could follow.

The expected increase has now happened. The Guardian reported that it was the Bank's first rise in more than three years, as policymakers sought to fight rising inflation.

The decision leaves borrowers facing higher benchmark rates just as many prepare to replace older mortgage deals. The 2.3 million households identified by the Guardian are those coming off fixed-rate deals in 2027, rather than households all facing an immediate payment change.

The main question is whether this becomes a series of increases. Bloomberg reported that the Bank signaled another hike was possible. The tension is between its warning of inflation approaching 5% next year and the more reassuring reading from its new inflation gauge, reported by Bloomberg Economics a day before the decision.