Bank Rate is 4 per cent. The Bank of England raised it on Thursday by a quarter of a point, the first increase since August 2023, and on Friday morning the stock market fell anyway. By 9am the FTSE 100 was down about 1.5 per cent, close to 10,620, after opening almost flat at 10,784. The move that households will feel is the dearer one. The move that traders were trading was made in New York and Tokyo, not on Threadneedle Street.
The Monetary Policy Committee, at a meeting that ended on Wednesday and was published on Thursday, voted 8 to 1. Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Huw Pill, Dave Ramsden and Alan Taylor backed 4 per cent. Catherine Mann wanted 4.25 per cent. Inflation was 3.5 per cent in September. Bank staff, using energy prices averaged to 27 October, now expect it around 4.5 per cent in the first quarter of 2027 and around 5 per cent in the second, about 1.25 points higher than the July forecast. The next decision is on 17 December.
What 4 per cent changes, and what it does not
About 500,000 homeowners have a mortgage that tracks Bank Rate. For a typical loan, the quarter-point rise adds about 31 pounds a month. Another 500,000 on standard variable rates must wait to see if their lender passes it on. Where it does, the usual addition is about 14 pounds a month. The other 87 per cent of mortgage customers are on fixes. Their payment does not change until the fix ends, but the price of the next fix already has. The Bank says two-year mortgage rates are up nearly 50 basis points since the start of September. Its survey of market participants had pencilled in 4 per cent for November and 4.25 per cent for February.
Chief Secretary Emma Reynolds said the government knows this is a difficult time for families, and that the war in Iran is the main driver of inflation. She called de-escalation the most important economic policy, and pointed to the 100 pounds off some winter energy bills in John Healey's Budget. The BBC's reading of the Bank's forecast is that a typical household energy bill rises 27 per cent in January, to 2,150 pounds a year. Bailey said the rise should not be seen as the first of an inevitably long sequence of hikes. He also said that, unless the conflict is resolved, it is unlikely to be the last. In his own note he wrote that, without news which softens the risks, he can see the argument for a further increase.
The Decision, and the Morning After
- Bank Rate is 4 per cent, up from 3.75 per cent. The vote was 8 to 1.
- Catherine Mann preferred 4.25 per cent. The next meeting is 17 December.
- Inflation was 3.5 per cent in September, and is projected near 5 per cent by the middle of 2027.
- A typical tracker mortgage rises by about 31 pounds a month.
- The FTSE 100 was down about 1.5 per cent by 9am. Brent was near 98 dollars.
An AI sell-off the FTSE could not sit out
Thursday's close was 10,782.66. Friday's open was 10,784.16, a gain of a point and a half, and then the index gave way. One screen at 9am put the FTSE 100 at 10,616, down 1.5 per cent. The FTSE 250, which holds more technology names, was down about 1 per cent. AstraZeneca, the second largest company in the index, fell about 3 per cent. GSK was down about 2.3 per cent and Haleon about 3.2 per cent. Only a handful of the hundred shares rose. Drugmakers were sold on the fear that slower spending on artificial intelligence means slower gains in drug discovery, even though the London index has little direct technology in it.
The selling started overnight. The Nasdaq fell 5.5 per cent and is now more than 10 per cent below its 6 October high, its worst session in 19 months. Japan's Nikkei fell about 6 per cent. Samsung and SK Hynix dropped hard in Seoul. Investors are worried about weak returns, high valuations and debt-funded spending on data centres, and about a Democrat-led Congress that might curb that spending after the midterms. Brent, which fell nearly a fifth this week, was near 97.93 dollars by 9am, down 36 cents on the session and back under 100. Thursday's preview still had the rise as something markets were waiting to be told. They have been told. The pound's strength and the oil drop did not spare London equities once Wall Street sold technology.
House prices were already slipping
The Lloyds house price index, published into the same morning, put the average price at 296,285 pounds. That is down 0.6 per cent in October and 1.2 per cent on the year, the largest annual fall since October 2023. Prices were 0.5 per cent lower over the three months to October. A higher Bank Rate does not rewrite those completed sales. It does change the mortgage a buyer can be offered next month, and it lands on the same households ministers are asking energy firms to help with arrears. Dearer money, a weaker stock market, and an energy bill that is still pointed up: that is the Friday picture, whatever oil did on the week.