Bank of England raises its rate to 4%, its first increase since 2023, and forecasts inflation rising to 5%

The Bank of England raised interest rates to 4% and forecast that inflation will rise to 5%². It was the first time the bank has lifted its rate since 2023⁶. The move came at the Bank’s policy meeting last week^3,4.

The 0.25% increase was expected, but a hawkish dissent in favour of more tightening was not⁵. UK inflation stood at 3.5% in September, well above the Bank’s 2% target, leaving the Monetary Policy Committee with no choice last week, in one assessment⁴.

Across the Atlantic, New York Fed President John Williams took a more patient line, saying that with inflation persistently too high, the current period was suitable for collecting additional information⁸.

Why it matters to investors

Markets absorbed the move calmly. London stocks moved higher on Thursday afternoon, with the FTSE 100 gaining 0.7% as investors responded to the Bank’s first interest rate increase⁹. The dollar has been gaining as stocks and oil slide⁵.

The dissent matters more than the hike itself. The committee delivered a quarter point, but at least one dissent favoured more tightening⁵, and the Bank now forecasts inflation rising to 5%².

Households and borrowers face higher costs. Mortgages, credit cards and loans could get more expensive for millions of people as UK interest rates rise¹. One borrower said their mortgage was going up by £200 a month¹. HMRC interest rates for late tax payments will be revised following the increase⁷.

Savers are also being warned. A warning has been issued for anyone with savings in bank or building society accounts after the Bank hiked rates last week³, in what was framed as a £1000 warning to savers³.

What to watch

Inflation data is the first marker. With inflation at 3.5% in September⁴ and a forecast of 5%², each new reading will show whether prices are moving toward or away from the 2% target⁴.

The committee’s split is the second. The dissent in favour of more tightening⁵ makes the next meeting’s vote a test of how many members want to go further than 4%².

Pass-through is the third. How quickly lenders lift mortgage rates¹ and how HMRC resets its late-payment rates⁷ will show how fast the first increase since 2023⁶ reaches households.