The Bank of England’s Monetary Policy Committee is widely anticipated to increase the base rate from 3.75% to 4% at its announcement scheduled for Thursday at 12:00 GMT. This would represent the first rate rise since August 2023, ending a period of six consecutive meetings during which policymakers held rates steady.
Analysts attribute the expected hike primarily to elevated inflation, which has been driven by rising costs of petrol, diesel, and energy. The Consumer Prices Index reached 3.5% in the year to September 2026, up from 3.1% the previous month and significantly above the Bank’s 2% target. The ongoing Iran war has contributed to higher energy and fuel prices, with millions of UK households preparing for substantial increases in domestic energy bills in January.
The rate adjustment would have immediate and varied consequences across the borrowing landscape. Approximately 510,000 tracker mortgage holders would face increased payments of roughly £31 per month following a 0.25 percentage point rise, while 470,000 borrowers on variable-rate mortgages would experience smaller increases of approximately £14 monthly once lenders respond. Those on fixed-rate mortgages are not immediately affected by the base rate change, though lenders have already factored the anticipated increase into new rate quotes. As of this week, the average two-year fixed mortgage rate stands at 5.96%, with five-year fixed rates at 5.99%.
Savers stand to benefit from any rate increase, as improved interest rates on savings accounts are likely to follow. However, market observers note that the decision extends beyond a simple rate rise, with policymakers required to balance persistently high inflation against a weakening economic growth outlook. Lenders and central bank officials must also consider how international developments may shape the UK’s economic trajectory in coming months.
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