The Bank of England raised Bank Rate by 0.25 percentage points to 4% from 3.75% on Thursday, an 8-1 vote in which Catherine L Mann wanted a 0.5-point rise.
The Monetary Policy Committee (MPC) said CPI inflation rose to 3.5% in September, from 3.1% in August, and is expected to reach around 5% by the middle of next year. The conflict in the Middle East is now in its ninth month.
Andrew Bailey, the Governor, said the increase should not be seen as the first in an “inevitable long sequence of hikes”, but that it does not seem likely to be the last unless the conflict is resolved.
MPC member Huw Pill said a single 25bps (basis point) rise was unlikely to be enough. In his words, reaching the necessary level of Bank Rate “is likely to require more policy tightening, including in the near term.”
Alan Taylor took a narrower view. He voted to hold in September, saying then that additional tightening was not warranted, and he described Thursday’s move as a risk-management ‘one-for-now’ insurance hike. He said the next move “could be up, down, or sideways.”
Mann, who had also backed an increase in July, argued for 50bps. She said projected CPI inflation reaches 4.9% by mid-2027, and that this rests on a significant fall in energy prices. A 50bps rise, she said, is “good policy”.
Energy is the driver. Front-month Brent crude futures averaged $108 a barrel over the 15 working days to 27 October, 38% above the level at the time of the July Monetary Policy Report. UK gas futures averaged 216 pence per therm, 81% higher.
Bank staff project headline CPI at around 4½% in the first quarter of 2027, about 1¼ percentage points above their July projection.
The MPC’s minutes say there is still limited evidence of second-round effects, meaning higher wages and prices set in response to the energy shock. The Committee judged, however, that the risk of material second-round effects had risen further since September and could last some time.
Official data show the pressure on households. The Office for National Statistics (ONS) said the average petrol price was 169.5p a litre in September, the highest since August 2022, and diesel was 192.5p, the highest since July 2022.
CPI goods inflation rose to 3.2% from 2.7% in August.
The ONS also said the UK’s 3.5% CPI rate was above France at 3.4% and Germany at 3.3% in September.
The vote was less divided than in the September meeting, when the MPC voted 6-3 to hold Bank Rate at 3.75%, with three members preferring a rise to 4%.
The minutes of the next MPC meeting, ending on 16 December, will be published on 17 December 2026.
