The Bank of England is expected to raise Bank Rate from 3.75 per cent to 4 per cent at noon, the first increase since August 2023. The move, if the Monetary Policy Committee delivers it, is aimed at an inflation shock from the Iran war that has not faded, even after oil fell hard this week. Chief Secretary to the Treasury Emma Reynolds is due to respond for the government afterwards.
The pound is already pricing the rise. Bank of England data show the sterling effective exchange rate index reached its strongest level since 23 June 2016 on Wednesday, the day of the Brexit referendum. That strength sits on two facts: a weaker dollar after the US midterm elections, and a market that treats a British rate rise as close to certain. A higher Bank Rate makes sterling more attractive to hold. It also makes mortgages more expensive for households still living with last week's Budget.
An insurance rise, with oil falling
Brent has dropped nearly a fifth this week. Democrats now hold both houses of Congress, and Vice President JD Vance has blamed the Iran war for the Republican defeat. Traders read that as a hint the fighting may ease. The FTSE 100 was up more than 1 per cent in early trade on Thursday, after a 1.8 per cent jump on Wednesday, when the index was around 10,660 by mid-morning. Wednesday's market note still had Brent back under 103 dollars.
Peder Beck-Friis of Pimco put the caveat in one sentence. Andrew Wishart, senior UK economist at Berenberg, expects a reluctant single step from 3.75 to 4 per cent, on the assumption that energy prices keep falling and consumer spending slows. He added that a second rise in February becomes more likely if activity stays strong, or if President Trump keeps up attacks on Iran into 2027 and oil does not stay down. Unlike other central banks, Threadneedle Street waited to see whether the energy shock would persist. Policymakers now judge that it has, with no settlement in the Middle East or in Ukraine.
What Markets Are Pricing at Noon
- Bank Rate expected to rise from 3.75 per cent to 4 per cent.
- The first increase since August 2023.
- Sterling's trade-weighted index is the strongest since 23 June 2016.
- The FTSE 100 was up more than 1 per cent in early trade.
- Emma Reynolds answers for the Treasury after the decision.
What a quarter point changes
A rise to 4 per cent does not rewrite John Healey's Budget. It does change the monthly bill for borrowers on variable and tracker mortgages, and it resets the starting point for the next fix. Gilt yields, last marked at 5.299 per cent on the ten-year at Friday's close, will take their cue from the minutes as much as from the vote. Investors want any hint of a second rise in 2027. The government wants a sentence it can live with: that this is insurance against wages chasing prices, not a new squeeze chosen in Downing Street.
Reynolds speaks after the decision, with the Commons on a mini-recess until Tuesday. Andy Burnham is back from Antigua. The number that matters today is still the one on the Bank's screen at noon. If it is 4 per cent, Britain will have dearer money, a stronger pound, and an oil market that has just moved the other way.