The Bank of England (BoE) has raised its benchmark interest rate to four per cent, marking its first increase in more than three years as rising energy costs fuel global inflation.
Gatekeepers News reports that the central bank announced a quarter-percentage-point increase on Thursday, joining the US Federal Reserve and the European Central Bank in tightening monetary policy since the outbreak of the Middle East conflict.
Disruptions to energy supplies in the Gulf linked to the US-Iran war, alongside Ukraine’s strikes on Russian oil refineries, have driven diesel prices to record highs globally.
Andrew Bailey, governor of the Bank of England, said the increase was necessary to contain mounting inflationary pressures resulting from higher energy costs.
“There is now enough inflationary pressure in the pipeline caused by the rise in energy prices, that an increase in Bank Rate is warranted,” Bailey said in a statement.
He cautioned, however, that the latest decision should not be interpreted as the beginning of a prolonged cycle of interest rate increases.
“Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes,” he said.
“But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase.”
Despite the inflationary pressures, the central bank upgraded its forecasts for the United Kingdom’s economic growth in 2026 and 2027.
The BoE now projects the country’s gross domestic product (GDP) to expand by 1.6 per cent in 2026 and 1.3 per cent in 2027, compared with its July forecasts of 1.1 per cent for both years.
The latest increase follows the bank’s last rate hike in August 2023. It had maintained its benchmark rate at 3.75 per cent since December.
Britain’s annual inflation rate accelerated more than expected to 3.5 per cent in September, significantly above the central bank’s two per cent target.
The BoE said its central forecast indicated that inflation could peak at 4.9 per cent in the second quarter of next year.
Meanwhile, millions of households across Britain are facing higher energy bills from the beginning of next year, despite government assistance announced in last week’s annual budget.
