In Focus | Bank of England raises rates to 4% in its first hike in over three years, Q3 GDP grows 0.7% on the quarter, and markets bet on another hike in December

On November 5, the Bank of England (BoE) raised Bank Rate by 25 basis points from 3.75% to 4% by an 8-1 vote, its first increase since August 2023; Monetary Policy Committee (MPC) member Catherine Mann voted for a 50-basis-point hike. The Bank said the conflict in the Middle East has entered its ninth month and energy prices keep climbing, and it expects UK CPI inflation to rise from 3.5% in September to around 5% by the middle of next year, while stressing that monetary policy is not on a pre-set path. The first estimate published by the Office for National Statistics (ONS) on November 12 showed that GDP grew 0.7% in the third quarter from the previous quarter, in line with the BoE's forecast. Sterling rose to its highest against the dollar since mid-September on the day of the decision, then fell back as the dollar strengthened; according to Reuters on November 12, markets see about a 75% chance of another BoE hike in December. UK October CPI figures will be published on November 18, and the next rate decision is due on December 17.

The easing cycle stopped at 3.75%, and more members have backed a hike at successive meetings this year

The BoE's previous tightening cycle peaked in August 2023, with Bank Rate at 5.25%. It began cutting in August 2024 and by December 2025 had made six cuts, totalling 150 basis points, taking the rate to 3.75%.

At the February meeting this year, four members still voted for another 25-basis-point cut, and the Bank held rates by 5-4. Since then, the Middle East conflict has pushed up energy prices and the voting pattern has shifted step by step: in April, Huw Pill became the first to vote for a hike; Megan Greene joined him in June; Mann also voted for a hike in July and September, and both meetings ended in 6-3 holds. The September Monetary Policy Summary showed that UK CPI inflation rose to 3.1% in August, and the Committee judged that the risks to inflation were skewed to the upside, and more so than in July.

The November decision: all nine members backed a hike, but split on its size and the path ahead

The minutes show that eight members, including Governor Andrew Bailey, voted for a 25-basis-point increase, while Mann voted for a 50-basis-point increase to 4.25%. The Bank said the conflict in the Middle East is now in its ninth month and global energy prices have risen further from already elevated levels; UK CPI inflation rose to 3.5% in September and is expected to rise to around 5% by the middle of next year. The knock-on effects of energy prices on other goods and services prices and on wages remain limited, but the inflationary pressure in the pipeline is now sufficient to warrant an increase; activity data have also generally been stronger than expected in recent months, adding to the case for a modest tightening. The Committee said monetary policy is not on a pre-set path and that it will assess the evidence at each meeting, paying particular attention to developments in wages, pricing behaviour and spare capacity.

The November Monetary Policy Report is conditioned on market interest rate curves and energy futures prices over the 15 working days to October 27. Its central projection shows CPI inflation peaking at 4.9% in the second quarter of 2027 and returning to the 2% target in the third quarter of 2028; in an adverse scenario in which energy prices stay high, inflation peaks at 6.2%. The Bank estimates that measures in the 2026 Budget announced on October 28, including a further freeze on fuel duty and an extension of the removal of VAT on electricity bills until July 2027, will lower CPI inflation by about 0.25 percentage points in the second quarter of 2027.

Members' views on the path ahead differ. Bailey said that, absent news that eased the inflation risks, he could understand the case for raising rates once more, after which he would take a more conditional approach depending on energy prices and inflation dynamics. Pill said a single 25-basis-point hike is "unlikely to be sufficient" and that further tightening, including in the near term, is likely to be needed. Greene said: "Additional hikes will likely be required going forward." Alan Taylor, by contrast, stressed that this was a risk-management "one-for-now" insurance hike, that "this is not the start of a hiking cycle", and that the next move "could be up, down, or sideways". Mann projected CPI inflation reaching 4.9% by mid-2027 and said that, from a risk-management and credibility perspective, a 50-basis-point hike is "good policy".

At the press conference, Bailey said the increase should not be seen as the first in an inevitable long sequence of hikes but that, unless the conflict is resolved, "neither does it seem likely to be the last increase". He also noted that Brent crude and UK wholesale gas prices had fallen by about 15% since the start of that week, and that if news on the conflict kept improving, inflation would peak slightly below 5%.

First estimate shows Q3 GDP up 0.7% on the quarter, in line with the BoE's forecast

The ONS first estimate, released at 07:00 UK time on November 12 (15:00 Beijing time), showed that UK real GDP grew 0.7% in the third quarter from the previous quarter, following 0.5% in the second quarter, and was up 1.9% year on year. Reuters reported that the growth rate was in line with expectations. In its November Monetary Policy Report, the BoE projected third-quarter growth of 0.7%, against only 0.1% in its July projection.

By sector, services grew 0.9%, of which business services grew 1.0%; production grew 0.1% and construction fell 0.7%. Information and communication grew 2.1%, mainly driven by computer programming, consultancy and related activities, which rose 4.4%; the ONS said this sub-industry has been the largest driver of GDP growth so far in 2026, and that many of the firms with the largest increases in turnover are involved in artificial intelligence and cloud computing. On the expenditure side, household consumption grew 0.6% and gross fixed capital formation grew 1.7%. Monthly data show GDP grew 0.2% month on month in September, while August was revised down from 0.1% growth to no change. The ONS cautioned that early estimates are subject to revision.

According to CNBC, Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the robust figures keep a December rate rise "firmly on the table". Kenneth Broux, a strategist at Societe Generale, told Reuters the data showed good momentum in the roll-out of artificial intelligence; as for whether a majority of members would back a December hike, "It could very well be another split vote."

Sterling gives back its gains, and market pricing of another hike in December rises to about 75%

According to Reuters on November 5, after the decision sterling was trading near $1.3468, little changed on the day; the rate-sensitive two-year gilt yield rose about 3 basis points to 4.77%. Traders raised their pricing of further hikes by the end of 2027 to about 76 basis points, from about 67 basis points before the decision. By the BoE's published daily spot rate, sterling stood at $1.3476 that day, its highest since mid-September.

Sterling has since fallen back against the dollar: on the same data, it was $1.3282 on November 11, down about 1.4% from November 5. According to Reuters on the morning of November 12, London time, after the UK GDP data sterling was down 0.06% at $1.3271, while the dollar climbed to a 19-month high against a basket of major currencies; CNBC reported that day that gilt yields were little changed after the data.

According to Reuters on November 12, markets assign about a 75% chance of another BoE hike in December, and money markets are pricing three more hikes by December 2027, with about a 50% chance of a fourth. The BoE said in its Monetary Policy Report that, on the 15-working-day average to October 27, the UK forward overnight index swap curve rises to about 4.9% at the end of 2027, while the median of the November Market Participants Survey expects Bank Rate to rise to 4.25% in February and to be 3.5% in two and three years' time, and that the gap between the two indicates risk premia are still steepening the curve. Bailey also said at the press conference that the market curve's pricing of further tightening next year largely reflects risk premia rather than expected rates.

Deputy Governor Clare Lombardelli said on November 10 at the Bank of England Watchers Conference that, absent evidence of weaker inflation pressures, she still thinks there is likely to be a case for raising rates further in the near term; but that judgement is conditional and, given the highly uncertain outlook, policy should move gradually rather than try to anticipate now the full adjustment that will ultimately be needed. According to Reuters, citing an interview published by the Guardian on November 10, she said she would not rule out a December hike, but "I don't have enough information just yet", and that it depends on how the conflict and energy prices develop.

Key dates ahead (Beijing time)

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