Bank of England lifts rates to 4% as committee splits over how many more rises

The Bank of England has raised interest rates to 4% and indicated that more increases are on the way, though its policymakers disagree on how far they should go, according to analysis by economics editor Faisal Islam for BBC News. His assessment is that one further rise is likely, after which the Bank would probably stop.

A divided committee

The nine voting members of the Monetary Policy Committee gave mixed signals. One member backed a larger move to 4.25%. Three members spoke of further rises in the plural, while another three, governor Andrew Bailey among them, pointed to just one more. Islam summed up his reading as "two and done, but it depends", with the next increase most likely in February and still conditional on the Iran war continuing.

Inflation pressures and a stronger economy

The Bank's forecasts show inflation heading to just under 5% next spring. A major driver is energy: a typical household bill is set to climb by 27% in January, reaching £2,150 a year. The decision to act now reflects concern that rising prices could feed expectations of further increases, although that effect has not yet appeared.

Several factors complicate the outlook:

• Oil prices: the forecast assumes an average of $108 a barrel, but oil was trading about 13% below that on the day of the decision, after falling around the US midterm elections amid expectations of de-escalation in the war.
• Growth: the UK economy grew 0.6% and 0.5% in the first two quarters and is heading for 0.7% between July and September, before slowing towards the end of the year.
• Jobs and currency: unemployment has stabilised and dipped slightly, while sterling stands at its highest level since the Brexit referendum against a basket of currencies, which can help ease inflation by making imports cheaper.

Islam stressed that the rise is painful for households on variable mortgages but should not be read as the beginning of a long cycle of hikes.

What it means for businesses

For companies and their customers, higher borrowing costs and steep energy bills are likely to weigh on budgets in the coming months, particularly for firms reliant on variable-rate loans or energy-intensive operations. At the same time, firmer growth, steady employment and a stronger pound offer some support. With the rate path tied closely to events abroad, businesses may find it prudent to plan for more than one scenario when reviewing financing and pricing.