The Bank of England raised Bank Rate, the rate that sets the cost of borrowing across the UK, by a quarter point to 4.00% from 3.75% at noon today, according to its Monetary Policy Summary. It is the first rise since 2023 and ends a run of six meetings without a change since the cut in December 2025. Eight of the nine members of the Monetary Policy Committee, the group that sets rates, backed a quarter point. Catherine Mann wanted to go further, to 4.25%. Markets had expected at least one vote to hold, so the absence of any was the firmer signal.
Energy is the reason. Inflation reached 3.5% in September, its highest since October 2025, with energy alone adding around one percentage point. In its new Monetary Policy Report, the Bank expects inflation to climb towards 5% by the middle of 2027 and to return to its 2% target only in late 2028. Brent crude averaged $108 a barrel in the weeks behind that forecast and has since eased to about $96, so the numbers can shift quickly in either direction. The Committee said there is little evidence so far of energy costs spreading into wider prices, with firms absorbing much of the rise through hedging and thinner margins.
Governor Andrew Bailey said there was "enough inflationary pressure in the pipeline" to act, but that the rise "shouldn't be seen as the first in an inevitable long sequence of hikes". Unless the Middle East conflict is resolved, he added, it is unlikely to be the last. Views on the Committee differ: Alan Taylor called his vote a "one for now" insurance move, while Megan Greene and Huw Pill expect more to be needed. Markets already fully price a further quarter point rise in February. The Bank has raised rates without committing to a path, and that caution is deliberate.
What it means for GBP/EUR
Sterling barely moved. At 12:15 GMT, GBP/EUR was around 1.2000, little changed on the day, with GBP/USD at 1.3472. The rise had been priced in for weeks. With the European Central Bank holding its deposit rate at 2.50% on 29 October, the gap between UK and eurozone rates widens to 1.5 percentage points, which supports the pound over time. The near term risks are oil, where any easing in the Middle East would reduce the case for February, and US jobs data tomorrow. The next decision is on 17 December. For a business with euro payments due in the coming months, a forward contract fixes today's rate, near the pound's best level against the euro in well over a year, for settlement on a future date.
