BoE hikes rates for first time since Iran war, inflation to hit 5%

According to CNBC, the Bank of England has raised its key interest rate by 25 basis points to 4%, marking its first hike since August 2023. This move positions the BoE as the last major central bank to begin a tightening cycle following the US-Iran war.

The decision is driven by escalating energy costs resulting from the prolonged Middle East conflict. As a net energy importer, the UK is particularly exposed to these shocks. With inflation rising to 3.5% in September, policymakers now project inflation could hit about 5% by mid-2027.

Strategists view this as a pivotal shift in monetary policy. While the Monetary Policy Committee voted 8-1 for the quarter-point hike, hawkish members argue that the economy has entered a regime where second-round effects are accelerating. Maintaining credibility is now seen as a critical risk management priority.

Looking ahead, the path depends heavily on energy markets. Although traders currently price in a low chance of a December hike, the BoE warns that without a resolution to the conflict, further tightening may be necessary to anchor inflation expectations.