Will the Bank of England raise UK interest rates again in 2026?

The Bank of England’s ratesetting committee raised interest rates for the first time in three years in November.

The bank’s Monetary Policy Committee (MPC) voted to hike the Bank Rate (or ‘base rate’) to 4% on 5 November, with the motion passing by eight votes to one. The one dissenter voted to raise rates to 4.25%.

The hike was widely predicted by economists after inflation rose to 3.5% in the year to September and the Bank was able to calculate the impact of the 2026 Autumn Budget.

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Inflation is forecast to be higher for longer. The latest consumer prices index (CPI) data showed prices grew by 3.5% in the year to September, and price growth is expected to accelerate over the rest of this year and the first half of 2027.

A worse inflation outlook forced the MPC to abandon the “wait-and-see” approach to ratesetting that the committee had adopted for most of 2026.

Sanjay Raja, chief UK economist at investment bank Deutsche Bank, said: “After months of waiting, the Bank of England was finally forced off the sidelines.

“Energy prices have skyrocketed towards the Bank’s July ‘adverse’ scenario. Growth has consistently outpaced expectations. The labour market has held up better than feared. And CPI inflation is now on course to breach 4% early next year.

“Put simply, for the MPC, the balance of risks has shifted. And as widely expected, the MPC raised [the] Bank Rate to 4% – marking its first rate hike since 2023.”

How inflation influences interest rates

The MPC uses economic data to help inform its interest rates decisions, and one of the most important is the rate of inflation. This is because the Bank of England has a mandate to keep the pace of price growth within the economy under control.

The Bank’s annualised CPI inflation target, like that of most western central banks, is 2%, which economic consensus says is a healthy level of inflation that encourages economic activity while keeping living costs from escalating too quickly.

The main way the central bank works to achieve this goal is by increasing or decreasing interest rates.

Broadly speaking, when inflation is too high, the MPC will raise interest rates, and when it is too low it will lower them.

These are not the only two reasons why interest rates are moved, though. For example, rates might be lowered if economic growth is too slow, to help boost the economy.

UK inflation has been above the 2% target since September 2024 and the latest Bank of England forecasts show inflation will continue to rise in the first two quarters of 2027.

The rest of the economic background

Inflation is not the only data the MPC uses to make base rate decisions. Another key metric is the state of the labour market.

A softer labour market with higher unemployment and poor wage growth is a disinflationary pressure in the economy, while strong wage growth and full employment drives up inflation.

The latest set of labour market data, published on 20 October, showed unemployment fell to 4.7% in the three months to August, down from 4.9% in the three months to July.

At the same time, annual wage growth was 3.7% for both regular earnings (excluding bonuses) and total earnings (including bonuses) in the three months to August.

This was led by the public sector, where regular wages grew by 6.3% in the three months to August while private sector regular earnings grew by just 3% in the same period.

Meanwhile, the UK economy grew by 0.1% in August, down from 0.4% growth in the month prior.

Will the MPC hike interest rates again in 2026?

Between August 2024 and December 2025, the Bank of England cut interest rates six times – roughly once a quarter, and each time by 0.25 percentage points.

That cutting trend brought the base rate down from a recent high of 5.25% to 3.75% in December 2025.

At the start of the year, most economists thought this quarterly cutting trend would continue, bringing interest rates down to around 3.25%.

However, after the Iran war began on 28 February and it became clear that the UK would have to grapple with increased inflation, the MPC voted to hold interest rates at 3.75% until finally raising them in November.

That rate hike was a long time coming. The market had predicted that interest rates would rise since March, and as the extent of the economic fallout from the Iran war became clearer, economists increasingly predicted rate hikes in 2026.

The question now is whether the MPC will vote to hike interest rates again in the near future.

The Bank of England’s latest forecasts, published on 5 November, show the Bank now expects inflation to rise even higher over the coming months compared to what it predicted in June.

The central Bank now expects inflation to reach around 4.5% in the first quarter of 2027, around 1.5 percentage points higher than they expected in June, and to peak at around 5% in the second quarter of 2027. This uprating is in large part due to higher energy prices.

With inflation forecasts this high, economists have warned that the MPC could bring interest rates even higher in the near future, with a hike possibly coming as soon as December.

Raja at Deutsche Bank said the November rate hike was an “insurance policy” against second-round inflationary effects, which occur when an initial inflation shock changes the behaviour of workers and employers who may make demands like higher wages, further fuelling inflation.

“With less slack in the economy, the key question for the MPC was whether financial conditions were imparting a sufficient degree of monetary policy restrictiveness,” he said. “[November’s] hike was the MPC taking out some insurance around inflationary pressures already in the pipeline.”

Deutsche Bank now anticipates that the MPC will raise interest rates by 0.25 percentage points once more in the coming months.

Raja said: “Perhaps the bigger question from [November’s] decision is whether the next hike comes in December or February.

“There is a clear risk that the MPC could go earlier – this will be something to watch in the coming weeks and will likely be determined by forthcoming inflation outturns as well as developments in the Middle East.”

Although Deutsche Bank expects interest rates to rise again, they do not believe this will be the start of a long hiking cycle.

Instead they forecast the MPC to keep rates “on a long pause until spring 2028” before eventually easing them.

Economic research firm Oxford Economics also expects the MPC to raise interest rates to 4.25% in either their December or February meetings. It believes rates will peak at 4.25%, but add that risks are skewed to the upside.

Andrew Goodwin, chief UK economist at Oxford Economics added: “The outlook for Bank Rate is heavily dependent on prospects for global energy prices. If these stay high into next year and the economy continues to steadily grow, risks will rise that the MPC hikes beyond 4.25% to set a more clearly restrictive stance.”