Bank of England Raises Rates to 4%, First Hike in More Than Three Years
The Bank of England raised rates to 4%, its first hike in over three years, as inflation heads toward 5% on Iran-war energy prices.
The update
The Bank of England raised its base rate by a quarter point to 4% on Thursday, its first increase in more than three years. Eight members of its Monetary Policy Committee backed the move from 3.75%, while Catherine Mann voted for a larger half-point rise to 4.25%. The Bank said inflation, which reached 3.5% in September, is now expected to rise to about 5% by the middle of next year.
Why it matters
Policymakers blamed persistently high energy prices linked to the war involving Iran, with oil trading above $100 a barrel and pressure on the Strait of Hormuz. As a net energy importer, the United Kingdom is especially exposed to such shocks. The Bank expects household energy bills and food prices to rise further, squeezing incomes, while higher borrowing costs will pressure mortgage holders. Governor Andrew Bailey said another increase could follow if inflation risks do not soften.
What to watch
The Bank’s next decision is due on 17 December, with markets weighing a further rise. Thursday’s move is not necessarily the start of a long sequence of hikes, but Bailey warned it is unlikely to be the last unless the Middle East conflict is resolved.
Sources
- theguardian.com — confirms the vote, the inflation forecast and Governor Bailey’s comments
- cnbc.com — confirms the 25-basis-point rise to 4%, the 8-1 vote and the near-5% inflation outlook
Related coverage
- Australia Raises Cash Rate to 4.85%, Highest Since 2008, in Fifth Hike This Year
- Japan Raises Rates to Highest Since 1995
- US to Suspend South Africa and Rwanda From Duty-Free AGOA Trade Access
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