Traders increased their bets on further UK interest rate rises on Thursday after the Bank of England raised borrowing costs for the first time in more than three years.

Money markets now price in around 76 basis points of further tightening by the end of 2027, Reuters reported, up from roughly 67 basis points before the decision. They now see a 50% chance of another hike in December, up from around 30% beforehand.

The Bank's Monetary Policy Committee voted 8–1 to raise Bank Rate by a quarter point to 4% from 3.75%. Catherine Mann, the sole dissenter, voted for a bigger half-point rise to 4.25%.

Inflation warning

The Bank warned that at least one more increase was likely if the US–Iran conflict continues, and projected British inflation would rise to around 5% in the middle of next year — more than double its 2% target — after coming in at 3.5% in September.

Governor Andrew Bailey acknowledged the sharp drop in oil prices after the US midterm elections but said the outlook for inflation and rates remained uncertain.

Market reaction

Britain's benchmark 10-year government bond yield was last up 3 basis points at 5.17%, Reuters reported. The Bank's trade-weighted measure of the pound hit its highest since 2016 earlier on Thursday. The FTSE 100 pared its gains to trade 0.3% higher.

The Bank's next rate decision is due on Thursday 17 December.

Sources: Reuters, "Traders eye further rate hikes after first BoE increase in three years", 5 November 2026, https://www.reuters.com/business/traders-eye-further-rate-hikes-after-first-boe-increase-three-years-2026-11-05/; Bank of England, Monetary Policy Report November 2026, https://www.bankofengland.co.uk/monetary-policy-report/2026/november-2026.