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Bank of England raises interest rate to 4% / Another increase is possible if the war in Iran continues

Cristiana Dida

5 November 2026, 15:14

International

Foto: shutterstock.com

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The Bank of England raised its benchmark interest rate from 3.75% to 4% on Thursday, its first increase in three years, amid inflationary pressures caused by rising energy prices following the outbreak of the war in Iran. The institution warned that at least one more increase could follow if the situation in the Middle East does not stabilize.

The Monetary Policy Committee’s decision was adopted by eight votes to one. The only dissenting vote, cast by Catherine Mann, supported a rate of 4.25%. Governor Andrew Bailey said the increase should not be considered the start of an inevitable series, but acknowledged that it might not be the only one.

The Bank of England estimates that inflation in the United Kingdom will reach approximately 5% in the middle of next year, after rising to 3.5% in September, significantly exceeding the 2% target. Under the baseline scenario, inflation would return to target by the third quarter of 2028. If oil were to reach $130 per barrel, inflation could hit 6.2% in 2027.

The BoE has upgraded its economic growth forecasts to 1.6% for 2026 and 1.3% for 2027, supported by investment in artificial intelligence and recent fiscal measures. Markets expect the interest rate could rise to 4.75% in 2027.

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Context: recent developments at the ECB and Fed, plus data showing a resilient British economy despite price pressures

Before the Bank of England’s decision, markets were focusing particularly on the reactions of European and American central banks. The ECB kept its deposit rate at 2.50% and warned that a broader rise in energy prices could fuel inflation and slow growth, while the Federal Reserve raised its policy rate to 3.75%-4% and signaled that another increase could follow by the end of the year.

In Britain, previously published data indicated that the economy grew by 0.4% in the second quarter, providing a “moment of respite,” but with the risk that inflation would remain a problem for real incomes; the Bank of England estimated at that time that inflation would be approximately 3.2% during the year.