By Sohaib Shams
The Bank of England is widely expected to raise interest rates to 4% on Thursday, marking the first increase in more than three years as policymakers respond to accelerating inflation.
Rate hike expected Thursday
Financial markets predict the Monetary Policy Committee will lift borrowing costs from 3.75% to 4% when it announces its decision. The move would be the first rate increase since August 2023 and could squeeze mortgage holders.
Inflation driven by energy prices
Consumer price inflation rose to 3.5% in September, the highest in 11 months, pushed up by surging petrol and diesel prices linked to the Middle East conflict. Ofgem’s energy price cap rose 3.6% in October and is forecast to jump a further 22% in January, adding to price pressures.
Economists warn of further increases
Analysts say the committee’s patience with rising inflation has worn thin. Investec’s Ellie Henderson said a “risk management” hike could guard against temporary energy shocks becoming permanent. Oxford Economics’ Alexander Harvey called a November hike a “done deal” and noted markets expect further increases into 2027. The MPC will also consider a falling unemployment rate, which dropped to 4.7% in the three months to August, and unexpected economic growth of 0.1% in August.
