Bank of England raises rate to 4%, sees inflation near 5% in 2027

The Bank of England raised its benchmark interest rate by 25 basis points to 4% on Thursday, warning that higher energy prices could push UK inflation to around 5% by mid-2027, according to Anadolu Agency.

The Monetary Policy Committee voted 8-1 for the increase at a meeting that ended on Wednesday. Catherine Mann favored a larger, 50-basis-point rise to 4.25%.

The bank said the Middle East conflict, now in its ninth month, had driven up global energy prices and increased the risk of persistent inflation.

UK annual consumer price inflation reached 3.5% in September, its highest level since October 2025. It is projected to rise to around 4.5% in the first quarter of 2027 before reaching around 5% in the second quarter.

Evidence that higher energy costs were feeding into other prices and wages remained limited, but policymakers judged that mounting inflationary pressures warranted tighter policy. Stronger-than-expected economic activity also supported the decision.

Brent crude futures averaged $108 a barrel over the 15 UK working days ending Oct. 27, while UK natural gas futures averaged 216 pence per therm. Those levels were 38% and 81% above their respective levels at the time of July’s monetary policy report.

Some businesses had absorbed higher costs through reduced profit margins or remained protected by fixed-price energy contracts. The bank warned, however, that these buffers would likely prove temporary if the energy shock persisted.

The bank expects inflation to decline later as energy-related base effects fade and restrictive monetary policy curbs price pressures.

“Monetary policy is not on a pre-set path,” the bank said, adding that it would adjust rates as necessary to return inflation to its 2% target.