High inflation caused by the ongoing conflict in the Middle East meant that the decision to raise interest rates was taken unanimously among the bank’s nine-member decision-making committee.
Eight members voted in favor of raising the base interest rate by 0.25%, while the remaining member favored raising it by 0.5%.
This is the first rate hike in three years, and is also the first time in 2026 that the rate will change from 3.75%.
With rising inflation meaning many households struggle with energy costs, car fuel and other daily living costs, a mortgage rate hike would come as another blow.
However, the Bank of England must raise interest rates to bring down inflation, which is currently exceeding its 2% target.
Susannah Streeter, chief investment strategist at Wealth Club, described the decision by BoE policymakers – made ahead of Bonfire Night – as an attempt to “damp down the flames of inflation”.
“The interest rate rise was widely expected, so it did not set off fireworks in financial markets, but it will spook borrowers as balance sheets come under pressure next year,” she said.
“Policymakers have been unanimous in their plan to raise interest rates, which may reinforce expectations of further hikes to come.”
In fact, Streeter said financial markets had another three interest rate hikes in mind, and the Bank of England’s monetary policy summary revealed that members expect inflation to rise to around 5% by the middle of next year before falling.
“The conflict in the Middle East has had profound repercussions, and policymakers are concerned that high energy costs will be passed on to consumers and become an integral part of the economy,” Streeter said.
“So, they are trying to suppress demand by making borrowing more expensive. This would create a drag on spending and investment, make employers more conservative about hiring additional employees, and keep wage growth in check.”
What mortgages will be affected?
If you have a tracker or variable rate mortgage, you’ll likely see the impact of today’s decision on your repayments very soon.
However, for those looking to take out a fixed rate mortgage to purchase a home or remortgage, today’s rise has already been priced in by most lenders.
Unfortunately, this means that mortgage rates are currently at a three-year high according to Moneyfactscompare.co.uk data. However, this means that today’s decision will not necessarily lead to prices rising further.
Rachel Geddes, director of strategic lender relations at Mortgage Advice Bureau, said: “A rise in the base interest rate doesn’t close the door to buying, but it can change what you can borrow.
“Lenders set fixed interest rates based on where they expect interest rates to go, so some of today’s rise may already be reflected in the deals you see. If you already have a mortgage offer, it’s worth knowing where you stand rather than waiting to see what happens.
“If your deal expires within the next six months, today’s decision is a good opportunity to start comparing your options.”
Want more in-depth coverage on how today’s interest rate hikes will impact your mortgage? Whether you’re already a homeowner, buying a home or remortgaging, we’ve put together expert advice to help answer all your questions. It’s all here in our feature ‘4% Interest Rates: What It Means for Mortgage Borrowers’.
