The Bank of England raised its key interest rate by 25 basis points to 4.0% in an 8-1 vote, lifting sterling and prompting U.K. government bond yields to recover part of their earlier losses. The increase was widely expected, but Catherine Mann’s vote for a half-point rise surprised markets.
By Money Talk·November 5, 2026·2 min read·1,272 reads
Sterling briefly gained 0.1% to $1.3480 after the decision. The euro fell to an intraday low of 0.8319 pounds, close to Friday’s 19-month low of 0.8317, according to LSEG data. The 10-year gilt yield rose from 5.110% before the announcement to 5.148%, though it remained 1.2 basis points lower on the day, Tradeweb data showed.
Governor Andrew Bailey said he could see a case for another rate increase if the Middle East conflict did not end in a way that eased inflation risks. After that, he expected a “more conditional approach” shaped by energy prices and inflation dynamics. The BOE said there was still limited evidence that higher costs were feeding through to other prices and wages.
U.K. inflation reached 3.5% in September, and the BOE expects it to rise to about 5% by the middle of next year, well above its 2% target. The bank also said recent economic activity data had generally exceeded expectations, supporting the case for “modestly tighter” monetary policy.
Aberdeen economist Felix Feather said market expectations for three more rate increases might overstate the need for tightening, particularly as energy-market pressures had eased somewhat since Tuesday and the U.S. midterm results. He expected at least one further increase, probably in February next year, and said a relatively shallow tightening cycle could leave room for U.K. assets, including gilts, to rally. Aviva rates head Ed Hutchings said the Monetary Policy Committee would be increasingly concerned about second-round effects and likely want to act ahead of New Year wage settlements.
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