Bank of England to raise rates to 4% for first time in three years

The Bank of England is poised to raise interest rates for the first time in more than three years, ending a long period of stability that has defined the UK’s financial landscape. According to the BBC News ^[1], policymakers are expected to announce an increase from 3.75% to 4% on Thursday at 12:00 GMT, a move that will immediately tighten the cost of borrowing for households and businesses across the country.

This decision marks a significant shift, as the Monetary Policy Committee (MPC) had left rates unchanged at its last six meetings. The bank’s base rate currently sits well below its 2023-24 peak of 5.25%, but the recent upward trend in inflation has forced the committee’s hand. The Consumer Prices Index (CPI) stood at 3.5% for the twelve months ending in September 2026, a rise from 3.1% recorded in the preceding month, significantly exceeding the central bank’s 2% target.

The primary driver behind this resurgence is the soaring cost of petrol and diesel, which has filtered through to the wider economy. This energy pressure is linked to the ongoing impact of the Iran war, which continues to destabilise global fuel markets. Millions of domestic energy customers are already bracing for further price hikes in January, adding to the urgency for the Bank to act.

For borrowers, the implications are stark. A quarter-point rise would result in an immediate £31 increase in monthly repayments for the 510,000 individuals on tracker mortgages, according to calculations by banking trade body UK Finance cited by the BBC ^[1]. Those on variable deals, numbering around 470,000, may see an average £14 increase per month, depending on how quickly their lenders adjust rates.

The situation for those on fixed deals is more complex. While their current payments remain insulated from the change, the landscape for remortgaging has shifted dramatically. Financial information service Moneyfacts reported that the average two-year fixed residential mortgage rate stood at 5.96% as of 4 November, with five-year deals averaging 5.99%. Broker L&C noted that some borrowers could face paying almost £5,000 more annually on a £200,000 mortgage over 25 years compared to those who secured deals in 2021, when five-year rates averaged just 1.30%.

Chris Cheverall, head of UK at CMC Markets, suggested that the focus is now less on the immediate hike and more on the trajectory of future rates. "A quarter-point rise is already widely expected, but the Bank now has to balance inflation that is still too high against an economy where the growth outlook has weakened sharply," Cheverall said. Meanwhile, savers stand to benefit from improved interest rates, offering a silver lining in an otherwise tightening economic environment.