Economists expect Bank of England to raise interest rates to 4%

Economists and financial market traders expect the Bank of England to increase interest rates for the first time since August 2023. Traders are predicting that rates will increase from 3.75 percent to 4 percent when the Bank’s Monetary Policy Committee (MPC) announces its decision on Thursday, November 5.

Inflation and Energy Prices

Pressure on the MPC has increased following official figures showing that the Consumer Prices Index (CPI) inflation rose to 3.5 percent in September, the highest level in 11 months. This figure is above the Bank's 2 percent target rate.

Reports indicate that the conflict in the Middle East has contributed to this rise, specifically through a surge in petrol and diesel prices. Additionally, inflation is expected to rise this winter following these energy trends:

• On October 1, Ofgem’s energy price cap rose by 3.6 percent for a typical household.
• The cap is forecast to jump by a further 22 percent in January.

Ellie Henderson, an analyst for Investec, said, “We imagine that many committee members’ patience with the recent rise in inflation has worn thin. The longer energy prices remain elevated, the greater the risk that a temporary price shock becomes more permanent; a ‘risk management’ hike could guard against this.” Henderson also cautioned that producers might “not be willing or able to shoulder the burden of higher energy prices for much longer” which could increase shop prices.

Economic Indicators

Alexander Harvey, UK economist for Oxford Economics, stated that a November rate hike looks to be a “done deal” as the committee responds to higher oil and gas prices. Harvey noted, “So far, two factors have been central to the MPC’s decision-making since the outbreak of the conflict in the Middle East: the scale and duration of the energy price shock, plus the extent of any second-round inflation effects from elevated energy prices.”

The MPC is also considering other economic data, including:

• The UK unemployment rate, which fell to 4.7 percent in the three months to August, the lowest level in more than a year.
• August economic growth, which unexpectedly grew by 0.1 percent.

Why it matters

An interest rate increase would mean higher borrowing costs for consumers, which could impact mortgage holders. Financial markets are currently expecting further rate hikes continuing into 2027. Other central banks, such as the US Federal Reserve, have also recently implemented rate increases.

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Sources

• mirror.co.uk: Bank of England set to raise interest rates to highest level in three years - The Mirror
• london-now.co.uk: Bank of England set to hike interest rates to 4% to tackle rising inflation | London Now

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.