Bank of England raises rates to 4% in 8-1 vote, Bailey leaves door open to another hike

The Bank of England (BoE) raised Bank Rate, the interest rate it sets for the UK economy, by 25 basis points to 4.00% on 5 November 2026. The Monetary Policy Committee (MPC) voted 8-1, with the one dissenting member wanting a bigger 50 basis point increase. At his news conference, Governor Andrew Bailey said that without a resolution of the Middle East conflict, he could see the case for another quarter-point rise.

What happened

The decision was released at 12:00 UTC and matched expectations, with the economic calendar consensus at 4.00% against a previous level of 3.75%. The BoE pointed to higher energy prices tied to the conflict in the Middle East, as well as an economy that has been running stronger than it expected. It said there is still little sign of second-round effects, but decided that mounting price pressure warranted a move now. Policymakers repeated that each decision will be taken one meeting at a time, with a close eye on pay, how companies set their prices and how much spare capacity the economy has.

1. 1Middle East conflictPushes energy prices higher
2. 2Rising energy costsAdd pressure to UK inflation
3. 3Inflation outlookSeen near 5% by mid-2027
4. 4Bank of EnglandRaises Bank Rate to 4.00%

The figures

UK consumer price inflation stood at 3.5% in September, and the BoE now forecasts it will get close to 5% by the middle of 2027. On growth, the central bank upgraded its outlook and now expects the economy to expand by 1.3% in 2027, although it sees activity slowing further out. It also sees the jobless rate climbing to 5.1% in 2028. The new Bank Rate of 4.00% compares with 3.75% before the meeting.

A split committee

The minutes showed clear differences inside the MPC. Lombardelli, Pill and Greene signalled that more increases may be required. Taylor and Dhingra, by contrast, described the hike chiefly as a precaution in case inflation turns out higher than expected. Bailey himself said he would not commit to the idea of two hikes and then a stop, but added that higher market pricing for future rates partly reflects bigger risk premia, the extra return investors ask for uncertainty, rather than a firm expectation of more tightening.

Read alsoBank of England raises Bank Rate to 4% in 8-1 vote as inflation outlook nears 5%

Why it matters

Central bank rate decisions are one of the main drivers of a currency, because higher rates tend to make it more attractive to hold, all else being equal. Here, the message was mixed: the hike itself was expected, so traders focused on whether it is a one-off or the start of a series. Bailey's comments tie the next step closely to events in the Middle East, which have also been moving oil and gold this week. The BoE is not alone in this debate: European Central Bank (ECB) policymaker Zigman said the chance of an ECB hike as soon as December is relatively high, while stressing it is too early to judge how much more tightening may be needed.

What to watch next

Attention now moves to the BoE's December meeting, which traders were already looking at before today's decision. Between now and then, UK wage growth, inflation data and business surveys will help show whether higher energy costs are spreading into the wider economy. News from the Middle East will also matter, given how directly Bailey linked it to the case for a further increase.

Sources: Bloomberg, investingLive.