Bank base rate hits 4% - are more rate rises on the way?

The move had been widely anticipated by financial markets. In the days leading to the vote, the pound reached its highest level since the Brexit vote in 2016.

Rising energy prices largely caused by the conflicts in Iran and Ukraine have been driving inflationary pressures. The BoE warned inflation could reach nearly 5% by mid-2027.

So far, the UK economy has coped fairly well with the higher inflation. It has posted relatively healthy growth figures over 2026, above what many expected at the start of the year. The stronger economy gave the BoE scope to increase rates to counter higher inflation. The bank actually noted that the more resilient economy increased the chances that higher energy prices would affect prices in other areas.

More rises to come?

Within the BoE’s Monetary Policy Committee (the body which decides interest rates), the vote was 8-1 for a rise. However, one of the eight voted for a 0.5 percentage point increase.

BoE governor Andrew Bailey, who also chairs the MPC, warned: “Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes. But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase. The MPC will judge the outlook at each meeting, responding as necessary to bring inflation sustainably back to our 2% target.”

Hetal Mehta, chief economist at SJP, said: “The BoE's Monetary Policy Committee has collectively come to the conclusion that inflation pressures are too acute to not react to. However the commodity price drops in the past 48 hours are already making them cautious about their conviction in the future path of rates.”