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

Bank says Middle East conflict has driven global energy prices higher, increasing risk of persistent inflation

The Bank of England raised its benchmark interest rate by 25 basis points to 4% on Thursday, warning that higher energy prices would push UK inflation to around 5% by mid-2027. The Monetary Policy Committee voted 8-1 for the increase at its meeting ending 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 global energy prices higher, increasing the risk of persistent inflation. UK annual consumer price inflation reached 3.5% in September, its highest since October 2025, and is projected to rise to around 4.5% in the first quarter of 2027 before reaching around 5% in the second quarter. While evidence of higher energy costs feeding into other prices and wages remained limited, 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, respectively 38% and 81% above 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. However, policymakers warned these buffers would likely prove temporary if the energy shock persisted. The bank expects inflation to decline subsequently as energy-related base effects fade and restrictive monetary policy curbs price pressures. “Monetary policy is not on a pre-set path,” it said, pledging to adjust rates as necessary to return inflation to its 2% target.