The Bank of England has raised its interest rate to 4 per cent, increasing pressure on households with tracker and variable-rate mortgages ahead of Christmas.
The Monetary Policy Committee lifted the base rate by 0.25 percentage points, the first increase since August 2023. Eight members backed the move, while one supported a larger rise of half a percentage point.
Typical tracker mortgage payments could increase by about £31 a month, while borrowers on variable-rate deals may face rises of around £14. For some homeowners, the additional cost could offset the help announced by Labour in last week’s Budget.
Inflation pressures drive Bank of England rate rise
The Bank warned that inflation could reach 5 per cent next year, with further increases in interest rates possible unless the war involving Iran comes to an end.
Consumer price inflation reached 3.5 per cent in September, its highest level for 11 months and well above the Bank’s 2 per cent target. Inflation is expected to accelerate over the winter after the energy price cap for a typical household rose by 3.6 per cent on October 1.
The cap had been expected to rise by a further 22 per cent in January, adding to concerns over household finances and spending.
Pressure had been building on the Monetary Policy Committee to act as inflation remained elevated. Other central banks have also raised borrowing costs, including the US Federal Reserve, which increased its rate last month for the first time in three years.
The decision came despite signs of resilience in the UK economy. Unemployment fell to 4.7 per cent in the three months to August, its lowest level in more than a year, while the economy grew unexpectedly by 0.1 per cent in August.
Markets had been hoping that political developments in the United States could help ease tensions in the Middle East. Brent crude oil has since fallen to about 95 US dollars a barrel, from 115 dollars before the US elections, but the Bank said inflationary pressures remained a concern.
