BoE hikes rates for the first time in over three years

The Bank of England has raised interest rates for the first time in over three years, hiking Bank Rate to 4.0% amid growing concerns about the inflation outlook.

Expectations of that 25-basis-point increase surged in recent weeks as financial markets bet the central bank would move to tame inflation before it spikes further. The BoE last hiked rates in August 2023, when it was widely criticised for not acting quicker to curb rampant consumer price growth.

The European Central Bank, Federal Reserve, and Bank of Canada have all recently moved interest rates higher, but Britain’s central bank has kept rates on hold throughout the year to date as it weighs inflation fears against a weak outlook for the national economy.

What the decision means for mortgages

The decision is set to increase pressure on the roughly 1.4 million UK homeowners on tracker and variable-rate mortgages, whose monthly repayments will rise in line with the rate jump. Those on standard variable rates (SVRs) will face similar exposure, with lenders likely to pass through the full increase within weeks.

Fixed-rate borrowers are shielded for now with the quarter-point hike already baked into swap rates, the main driver of fixed mortgage pricing. Robert Gardner, Nationwide’s chief economist, told Mortgage Introducer the impact on fixed lending would be “fairly modest”.

Few in the mortgage industry will be surprised by the decision, with two-thirds of brokers surveyed by Mortgage Introducer this week indicating they expected the hike.

Could more rate hikes be ahead?

Of more interest could be the BoE’s next steps. The central bank has one more decision scheduled for 2026, set to arrive on December 17, and its first decision of 2027 will come on February 4.

Financial markets see global inflation pressure persisting if the US-Iran war continues because of the potential for further fuel cost increases.

That could spur the Bank into more rate increases in the months ahead, although further hikes are by no means a surefire thing. The Organisation for Economic Co-operation and Development (OECD) has questioned whether the BoE needs to raise rates because it sees UK inflation as largely in check, although others see the Bank and other global central banks adopting a more hawkish stance until consumer prices tick lower.

The consumer price index (CPI) jumped to 3.5% in September, its highest level since October 2025, and sticky inflation could keep pressure on the BoE to push ahead with rate hikes.

But Darren Winder, head of Lazarus Economics and Strategy, sees UK inflation returning to the BoE’s 2% target by the end of next year and potentially helping move interest rates lower.

For now, plenty of attention will focus on public statements and interviews by BoE decisionmakers until the December decision for an indication on whether further rate hikes could be ahead.

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