First time in three years: Bank of England raises rates as Iran war pressures persist since start
War fuels inflation concerns
The Bank’s Monetary Policy Committee pointed to persistently high oil prices, which have stayed above $100 in recent months. Hopes for an agreement that could reopen the Strait of Hormuz have faded.
The committee said higher oil costs are passing through to businesses and consumers. It expects the energy price cap for an average household in Great Britain to rise from £1,723 a year to £2,150 in January, then increase again in April. Food inflation could reach 4.75% by mid-2027.
Governor signals possible rise
In the committee’s minutes, the governor said another rate increase could be justified if there is no news easing inflation risks. He also said the Bank could then take a more conditional approach.
He cautioned that the latest increase should not be viewed as the start of an inevitable long run of rises. But he said another increase seemed possible unless the Middle East conflict is resolved. The next decision is scheduled for 17 December.
Households face competing pressures
The rate rise will add pressure for mortgage borrowers during a cost-of-living crisis. The committee expects real post-tax income to fall this year and next, echoing gloomy living-standards forecasts from the Office of Budget Responsibility.
The committee is also concerned that workers may seek larger pay rises to offset higher living costs. A week before the decision, John Healey used his first budget to promise families and businesses “breathing space,” according to Healey.
Key points
- The Bank raised its base rate from 3.75% for the first time in three years.
- The governor said another increase may follow if the Middle East conflict continues.
- The energy cap for an average Great Britain household is expected to reach £2,150 in January.
- The Bank’s next interest rate decision is due on 17 December.