RatesMarket noteFriday 6 November 2026, 08:05 UTC
Why did the Bank of England raise interest rates? Energy: it now expects inflation near 5% by mid-2027. All nine members voted for a rise, one for 4.25%.
The Bank of England raised interest rates on Thursday for the first time in more than three years. Its Monetary Policy Committee lifted Bank Rate by a quarter point to 4%, and no member voted to hold. Eight voted for the quarter point and one, Catherine Mann, for half a point, to 4.25%, the Bank’s November minutes show. Why did the Bank of England raise interest rates? Its answer is energy: it now expects UK inflation to reach about 5% by the middle of 2027.
The rise ends a run of six cuts. Bank Rate last went up on 3 August 2023, to 5.25%, and then fell in steps to 3.75% in December 2025, the Bank’s rate database shows.
The war in the Middle East is in its ninth month, and energy has kept getting dearer. Over the 15 working days to 27 October, Brent crude futures averaged $108 a barrel and UK gas 216p a therm, 38% and 81% higher than when the Bank last published forecasts in July, the minutes say. Energy alone added about 1 point to September’s inflation rate of 3.5%.
That is the direct effect, and the Bank cannot change it. Its worry is what comes next. Its staff now expect inflation of about 4½% in the first quarter of 2027 and about 5% in the second. The committee judged that the risk of “second-round effects”, where firms and workers push up prices and pay to make up for dearer energy, had risen further since September. It found little sign of such effects so far, but noted that they usually show up late and that households and firms watch the headline rate closely.
The economy also gave it room. Activity in recent months was stronger than the Bank expected, helped by exports and, it said, some boost from artificial intelligence. Many measures of underlying inflation were no longer falling. For some members, that was a sign that policy had not been as tight as they thought.
The vote said more than the rise. In September six members voted to hold and three to raise, the September minutes show, and our preview before the meeting asked whether two more would join them. This time all nine wanted a rise. Swati Dhingra, who argued that broad price pressures “remain subdued”, still voted for the quarter point.
Catherine Mann wanted more. She argued for half a point on grounds of “risk management and credibility”, to stop high inflation becoming built into wage and price-setting. The governor, Andrew Bailey, said that without better news on energy he could “see the argument for a further increase in rates”, and then a more cautious approach.
Borrowers felt much of this before Thursday: benchmark two-year mortgage rates rose by nearly 50 basis points between early September and the meeting, the minutes say. The 2-year gilt yield, which feeds into fixed-rate deals, was 4.85% on 3 November, 0.85 points above the new Bank Rate, Bank of England data show. As we reported on 6 October, five-year fixes had already reached a three-year high.
A yield that far above Bank Rate means investors expect more rises. The Bank’s own survey of market participants put the median expected path at 4% in November and 4.25% in February. The minutes also note that new mortgage approvals have been falling, while lending to businesses has stayed strong.
The Bank says policy “is not on a pre-set path”. It will watch pay, pricing and spare capacity, and the full forecasts and two scenarios are set out in its November Monetary Policy Report. One scenario has energy prices staying high; the other has demand faltering, which would hold back price rises. The Budget of 28 October should take about a quarter point off inflation by mid-2027, the minutes say.
Markets have made up their minds. Futures prices put the chance of another rise on 17 December at 97.0%, at the close on 5 November, Central Bank Watch calculates. That would take Bank Rate to 4.25%, the rate Mann voted for this week.
This is analysis and opinion, not investment advice.
Up next4 min read
RatesMarket noteTuesday 3 November 2026, 09:07 UTC
RBA rate hike: the cash rate rises to 4.85%, the fifth increase of 2026, in a 6–3 vote. The bank now sees inflation at 4.5% by December and above 3% for a year.
The Reserve Bank of Australia raised its cash rate by a quarter point to 4.85% on Tuesday, its fifth rate hike of 2026, and said inflation will stay too high for longer than it thought. Six of the nine members of its Monetary Policy Board voted for the rise and three for no change, the bank’s statement says. The new rate, which takes effect on 4 November, is the highest since December 2008.
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The lek has not bought so many euros since at least 1995, when Eurostat’s records begin. In September 2026 a euro cost 91.85 lek on average, the lowest monthly figure in those records. In 2019 it cost 123.01. Put the other way round, the lek now buys 33.9% more euros than it did in 2019, and 37.7% more dollars.
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