The Bank of England raised its key Bank Rate by 25 basis points to 4% on Nov. 5, its first increase in more than three years as the US-Iran conflict keeps energy-related inflation elevated. The decision came despite rising optimism that the war could end, which the Bank judged too late to prevent inflation from approaching 5% next year, and reflected the Monetary Policy Committee’s view that UK policy could not depend on any change in direction by President Donald Trump. The MPC voted 8-1, with Catherine Mann favoring a 50-basis-point increase to 4.25%. Governor Andrew Bailey said another hike is more likely than not if the high energy costs seen in recent weeks return, while stressing that the latest move did not begin an inevitable sequence of increases. Bailey also said a jump in inflation is already largely built in, even if tensions in the Middle East de-escalate rapidly. UK consumer-price inflation reached 3.5% in September, and the Bank said price pressures from months of high energy costs remained in the pipeline despite limited evidence that inflation had broadened beyond directly affected sectors. The BoE expects inflation to average 4.8% in the second quarter of 2027 and return to its 2% target in the third quarter of 2028. In a scenario where oil reaches about $130 a barrel, inflation could peak at 6.2% in the third quarter of 2027. The Bank raised its growth forecasts for 2026 and 2027 to 1.6% and 1.3%, respectively, partly citing artificial-intelligence investment and a temporary boost from finance minister John Healey’s annual budget. Financial markets priced three quarter-point increases in 2027, while several policymakers indicated that additional tightening could be required. Sterling strengthened and two-year gilt yields rose after the decision.