Bank of England hikes rates to 4.0% as inflation outlook bites – LCP

The Bank of England’s Monetary Policy Committee (MPC) today raised interest rates by 0.25% to 4%, its first increase since August 2023. The committee voted by a majority of 8-1 with a sole dissenter preferring to increase the bank rate by 0.5% to 4.25%.

Chris Helyar, Partner in LCP’s investment team, commented:

“The MPC’s decision today to increase rates highlights an increasingly tough outlook for the UK, as a prolonged conflict in the Middle East continues to feed through into energy prices. UK headline CPI inflation over the year to September 2026 rose to 3.5%, accompanied by corresponding increases across core, goods and services inflation.

“Elevated energy prices coupled with recent resilience in UK GDP growth strengthened the case to act now before inflationary pressures become more embedded. While other central banks raised interest rates over September in response to inflationary concerns, the Bank of England had adopted a wait-and-see approach. Today’s increase suggests policymakers judged the balance of risks has shifted towards acting now, rather than waiting for clearer evidence of inflation feeding into wages and prices.”

He added:

“The international backdrop also shows how finely balanced these decisions are. Having raised rates in September, the US Federal Reserve and European Central Bank both held rates unchanged last week. The MPC’s next meeting on 17 December 2026 will be closely watched, as will energy prices, as we head into winter.”