Bank of England expected to raise rates for first time in more than three years

The Bank of England is expected to raise interest rates on Thursday, in what would be the first increase in the benchmark rate for more than three years. Most analysts are forecasting a rise from 3.75% to 4%, a move that would increase borrowing costs for households and businesses while improving returns for savers. The announcement is due at 12:00 GMT, with markets also watching closely for any guidance on the future path of policy.

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The expected decision comes after the Monetary Policy Committee left rates unchanged at its last six meetings. The Bank rate has fallen from its 2023-24 peak of 5.25%, but inflation has been moving higher again. Consumer Prices Index inflation stood at 3.5% in the year to September 2026, up from 3.1% the previous month and still well above the Bank's 2% target.

Analysts say the main pressure on prices has come from petrol and diesel costs, with the wider impact of the Iran war feeding through into energy and fuel prices. The Bank has also warned that millions of domestic energy customers are braced for a sharp rise in bills in January. If rates rise, the effect would be felt quickly by the 510,000 tracker mortgage holders, while around 470,000 borrowers on variable-rate deals would see changes only after their lenders respond.

The move would matter because it would signal how the central bank is weighing persistent inflation against a weaker growth outlook. A quarter-point increase would be modest in size, but it would mark a change in direction after a long period of holding rates steady. It would also shape expectations in financial markets about whether the Bank is prepared to keep policy tight for longer.

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The Bank last raised rates in August 2023, and since then policymakers have been trying to judge how far inflation pressures would ease without further action. The benchmark rate influences what banks and building societies charge for mortgages and other loans, as well as the interest paid on savings. That makes the decision important not only for markets, but also for households already facing higher living costs.

What remains unclear is whether Thursday's announcement will be the start of a new tightening cycle or a one-off move. Attention will be on the wording from the Monetary Policy Committee for clues about future meetings and how concerned it is about inflation staying above target. The scale of any immediate impact on mortgage rates and broader borrowing costs will also depend on how lenders react after the decision.

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