Bank of England Raises Interest Rate to 4% in First Hike Since 2023 as Iran War Fuels Inflation

The Bank of England has raised interest rates for the first time in more than three years, lifting the base rate from 3.75% to 4%. The move, announced on Thursday, 5 November 2026, marks the first rise since August 2023.

Policymakers blame the Iran war, which has driven up fuel bills and pushed UK inflation well above target. With borrowing costs set to rise and household budgets already under pressure, millions of homeowners, savers and consumers are watching closely to see what the change could mean for their finances.

How the Iran War Has Added to Inflation Pressures

The conflict began on 28 February, when the US and Israel went to war with Iran. Before then, many economists expected the Bank of England to cut rates during 2026.

Earlier this year, the Bank kept rates at 3.75% while officials assessed the potential economic impact of the crisis. Governor Andrew Bailey said then that the Middle East conflict had pushed up global energy prices.

The Strait of Hormuz, a key shipping route for oil and gas, has faced serious disruption. That has squeezed global supplies and contributed to higher energy prices.

UK inflation reached 3.5% in September, an 11-month high and well above the Bank's 2% target. Higher fuel costs affect much more than petrol prices, feeding into transport, food distribution and other parts of the economy.

Bank Warns Inflation Could Near 5% by Mid-2027

The Bank now expects inflation to climb close to 5% by the middle of 2027 as the energy shock works through the economy. Bailey said at least one more rise should be expected, while cautioning against assuming a long run of hikes.

The decision was widely expected, but policymakers were not unanimous. One rate-setter voted for a larger increase to 4.25%.

Why does a higher rate help? Raising the base rate makes borrowing more expensive and saving more attractive, which can reduce spending and help slow price increases.

What the Rate Rise Means for Mortgages and Savings

Homeowners on tracker mortgages are likely to see their payments rise almost immediately, because these deals follow the base rate. Those coming off a fixed deal may also face higher borrowing costs when they remortgage.

Borrowers hoping for cheaper deals may have to wait. Mortgage lenders price new fixed deals using their own forecasts for future rates, so offers can shift quickly following a Bank decision.

Financial experts often advise speaking to a mortgage broker before locking in a new deal. Anyone with a variable-rate loan should check their monthly budget now.

Savers may get some relief, as banks often lift savings rates after a hike. However, providers do not have to pass on the full rise, making it worthwhile to compare available accounts. With inflation at 3.5%, rising prices can still eat into money sitting in low-interest accounts.

What Comes Next for UK Interest Rates?

Much will depend on how long the Iran war lasts and whether normal shipping operations resume through the Strait of Hormuz. Policymakers have repeatedly indicated that the longer the disruption continues, the greater the pressure on prices.

Investors currently see the possibility of further rate rises in 2027. For now, many households are bracing for another squeeze on the cost of living.