Bank of England lifts interest rates, warns of further increases

The Bank of England has increased interest rates for the first time in over three years, with the Monetary Policy Committee voting 8-1 to raise rates to 4% from 3.75%. This decision comes as British inflation is expected to rise to around 5% in mid-2027, more than double the central bank's target. Prime Minister Andy Burnham has sought to ease the cost-of-living pressures, but the BoE warns that further increases are likely if the US-Iran conflict persists.

The central bank found little evidence of faster inflation outside of sectors directly affected by higher energy costs. Sterling strengthened against the US dollar following the decision, and two-year British government bond yields rose while yields fell elsewhere, indicating increased bets on future rate hikes. The BoE's Monetary Policy Committee now sees inflation peaking at 4.8% in the second quarter of next year, and it will take until the third quarter of 2028 for it to return to its 2% target.