Bank of England raises interest rate to 4%, its first hike since 2023, and warns inflation could hit 5%

The Bank of England has put up interest rates for the first time in three years, raising its main rate from 3.75 per cent to 4 per cent.

Eight of the nine members of the Bank's Monetary Policy Committee voted for the quarter-point rise on Thursday. The ninth, Catherine Mann, wanted a bigger increase, to 4.25 per cent.

The Bank said months of high energy prices linked to the conflict with Iran were feeding through to the cost of living. UK inflation was 3.5 per cent in September, up from 2.9 per cent in July, and the Bank now expects it to reach about 5 per cent by the middle of 2027. It does not expect inflation to fall back to its 2 per cent target until 2028.

Governor Andrew Bailey said the rise should not be seen as the start of an unavoidable run of increases, but the Bank warned that more hikes were likely unless the Middle East conflict eases.

The decision will hit people with tracker and variable-rate mortgages first. Analysts at Moneyfacts estimate that a £250,000 tracker mortgage over 25 years will cost about £37 more a month. People on fixed-rate deals will not be affected until their deal ends. Nigerians and other migrants living in the UK with mortgages or loans will also feel the squeeze.