Bank of England raises interest rates for the first time in three years, signals further tightening

The Bank of England raised interest rates by 25 basis points to 4% on Thursday, with today’s action marking the first rate hike since 2023.

The Monetary Policy Committee voted 8-1, with one policymaker voting for a bigger hike that markets saw as hawkish hike, as the central bank signaled more policy tightening if the war between US and Iran, one of main inflation generators, continues.

The BoE expects inflation, which is currently at 3.5%, to rise to 5% by the mid-2027 that will keep pressure on the central bank as well as British economy and particularly on households and make the task of PM Burnham’s government to ease cost of living pressures much more difficult.

In a worse scenario, which includes war escalation and oil prices surging above $120 per barrel, inflation could spike above 6%.

BoE’s Governor Andrew Bailey was more diplomatic in the press conference following the policy decision by stating that today’s increase should not be seen as the first in an inevitable long sequence of rate hikes, but neither does it seem likely to be the last increase if the conflict in the Middle East does not end soon.

He added that the latest significant drop in oil prices was encouraging but warned of a significant amount of inflationary pressure on the horizon.