Bank of England’s latest decision on base rate

Base rate increased to 4% as energy pressures build

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points to 4% at its November meeting⁽¹⁾. One member voted for a larger increase of 0.5 percentage points, to 4.25%.

Sustained high energy prices and rising headline inflation were key factors behind the decision. The Middle East conflict entered its ninth month in November, with elevated energy prices continuing to feed through to household and business bills. Consumer Prices Index (CPI) inflation rose to 3.5% in September and is now expected to reach around 5% by mid-2027.

The MPC said it will closely monitor the extent to which higher energy prices feed through to other prices and the wider economy, particularly through underlying pay, pricing behaviour and spare capacity.

While there has been limited evidence of knock-on effects on other prices and wages to date, the MPC judged that inflationary pressures had increased sufficiently to warrant a rise in Bank Rate.

Sam Parkin, senior economist at BCIS, said: ‘The Bank of England’s decision to raise interest rates by 25 basis points to 4% adds further pressure to construction projects already facing difficult decisions over costs, funding and viability.

‘Headline inflation rose to 3.5% in September, while core inflation increased to 2.8%. Core inflation excludes energy, food, alcohol and tobacco, helping policymakers assess underlying price pressures. Its increase warrants attention, although one month’s figures cannot establish whether inflation is becoming embedded.

‘The Bank’s concern is that sustained high energy costs will increasingly feed through into other prices and wages. Higher producer input prices indicate pressure further along the supply chain, although the extent to which businesses can pass these costs on will depend on demand and competition.

‘For construction, this creates pressure on both sides of the viability equation. Higher borrowing costs can make development finance more expensive and constrain buyers’ purchasing power, while elevated energy and materials costs put pressure on project budgets and contractors’ margins.

‘An increase in Bank Rate will not translate directly or immediately into an equivalent rise in every mortgage or development loan. Nevertheless, the prospect of borrowing costs remaining higher for longer could cause some clients to reconsider when, or whether, to proceed.

‘Although likely, further rate increases are not inevitable. The outlook will depend on energy prices, wages and broader inflation pressures. For clients and contractors, the priority is to test project viability against different financing and construction cost assumptions, particularly where margins are already tight.’

In its commentary, the MPC said the outlook for inflation would depend on the scale and duration of energy and other global supply shocks, their potential knock-on effects on prices and wages, and the outlook for domestic economic activity and spare capacity. It said monetary policy would continue to be set to ensure inflation returns sustainably to its 2% target.

The committee highlighted the sharp rise in oil and gas prices in recent months. The front-month Brent crude oil futures contract and UK front-month natural gas futures contract averaged $108 per barrel and 216 pence per therm, respectively, over the 15 UK working days ending 27 October. These were 38% and 81% higher, respectively, than at the time of the July Monetary Policy Report.

Direct energy effects contributed around 1 percentage point to CPI inflation in September, largely driven by fuel prices. The MPC expects these pressures to increase further over the coming quarters before easing, although the extent of any longer-term impact on inflation remains uncertain.

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^{(1) Bank of England – Bank rate increased to 4% – November 2026 Monetary Policy Summary and Minutes – here}