The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to raise the Bank Rate by 0.25 percentage points, from 3.75% to 4.00%, at its November meeting. This is the Bank’s first increase in interest rates since August 2023.
There was broader support for tighter monetary policy than might have been anticipated. Eight members voted for a 0.25 percentage point increase, while Catherine L Mann favoured a larger rise of 0.5 percentage points, taking Bank Rate to 4.25%. Swati Dhingra and Alan Taylor, both of whom had previously favoured holding rates steady, supported an increase this time, reflecting the growing concern that higher energy prices could feed through into more persistent inflation.
The Bank expects inflation to rise further from its September level of 3.5%, reaching around 5% by the middle of next year. This reflects the continued impact of the conflict in the Middle East, which has pushed global energy prices higher. The Bank expects inflation to fall back thereafter as the direct effects of higher energy prices fade and monetary policy continues to bear down on price pressures. However, the outlook remains highly uncertain and depends heavily on the duration of the conflict and the extent to which higher energy costs feed through into other prices and wages.
There is still limited evidence of significant second-round effects in wage and price-setting, although the Bank cautioned that these can take time to emerge. Firms have so far absorbed some of the increase in energy costs through lower profit margins, while fixed-price contracts and hedging arrangements have also delayed the impact on some businesses. However, these buffers may prove temporary if energy prices remain elevated.
The decision reflects a deterioration in the inflation outlook since the Bank’s previous forecast in July. Global energy prices have risen further, while UK economic activity has proved more resilient than expected and the labour market has shown signs of stabilising. Some measures of underlying inflation have also stopped falling. Together, these developments have increased concerns that the existing degree of economic slack may not be sufficient to prevent the latest energy shock from generating more persistent inflationary pressures.
The strength of the MPC vote arguably overstates the degree of agreement over what should happen next. While there was broad support for a modest increase as insurance against the risk of more persistent inflation, members differed in their assessments of the underlying strength of domestic inflationary pressures and how restrictive monetary policy already is. Governor Andrew Bailey stressed that the increase should not be interpreted as the start of an inevitable sequence of further rises. The Bank has emphasised that future decisions will depend on how energy prices, wages, business pricing behaviour and economic activity develop.
The Bank’s decision contrasts with those of the European Central Bank and US Federal Reserve, both of which held interest rates steady at their most recent meetings in late October.
For UK manufacturing, the increase adds to the cost of borrowing at a time when many businesses are already facing elevated energy and input costs. Higher interest rates may also weigh on customer demand and make investment in new machinery, equipment and capacity more expensive, potentially delaying capital expenditure decisions. However, the wider impact will depend less on this 0.25 percentage point increase in isolation than on the future path of interest rates and the extent to which higher energy costs feed through into the broader economy. The decision underlines the difficult balance facing manufacturers: managing continued cost pressures while navigating uncertainty over demand, financing conditions and the outlook for investment.
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2026/november-2026, or request this from MTA.