The Bank of England raised Bank Rate by 25 basis points to 4.00%, with eight policymakers supporting the move while Catherine Mann voted for a 50-basis-point increase. The Bank upgraded its inflation outlook and warned that renewed energy pressures could yet prompt further tightening. It now expects inflation to peak at about 5% in Q2 2027, compared with an earlier view of 3.2% in late 2026, and does not see CPI returning to the 2% target until Q3 2028. Under its adverse scenario, inflation would reach 6.2% if the energy shock intensifies.
Growth and Labour Market Outlook
The Bank’s near-term growth outlook was lifted, yet the medium-term profile remains softer: GDP is seen rising 1.6% in 2026, then easing to 1.3% in 2027 and 1.2% in 2028. Unemployment is expected to drift higher, while pay growth is projected to be stronger than previously estimated.
Fiscal and Monetary Policy Guidance
Fiscal policy is forecast to lower inflation briefly before the effect fades. Policymakers described rates as restrictive, flagged limited evidence of second-round effects, and left the next decision open, while noting that market-rate expectations partly reflect risk premia.
