Bank of England raises interest rates to 4% and warns more may follow

The Bank of England has raised its base rate from 3.75% to 4%, the first increase in more than three years, as it tries to stop energy-driven inflation from becoming entrenched. The Monetary Policy Committee voted 8 to 1 for the quarter-point rise. A BBC News breaking bulletin briefly described the move as three quarters of a point, but the same bulletin and other channels reported the change as 3.75% to 4%.

The bank said inflation, already 3.5%, is likely to reach about 5% next year as higher oil and gas prices feed through into household bills. BBC One reported that the energy price cap is expected to rise by 27% in January, from £1,723 a year for a typical household to £2,150. Reports differed on the expected size of the January increase: BBC News and BBC One said 27%, Sky News said 24%, and BBC Two said 25%. ITV reported that the bank warned inflation could peak as high as 6% if the war in Iran continues. Sky News cited a 4.9% central forecast and an adverse scenario in which inflation could go higher.

Andrew Bailey, the Governor of the Bank of England, said the increase should not be seen as the first in an inevitable long sequence of hikes. He warned that unless the conflict in the Middle East is resolved, further rises are likely. Faisal Islam, the BBC's economics editor, reported that markets expect another rise in February, depending on the war.

For borrowers, tracker and variable-rate customers face immediate increases. Channel 5 reported that a typical tracker mortgage would cost about £31 more a month. ITV put the increase at £37. The difference reflects the illustrative mortgage used. ITV also reported that the average two-year fixed mortgage has risen by almost £170 a month since the Iran war began. Helen, a self-employed borrower, told ITV she expects her 3.3% deal to more than double to around 6.6% or 6.7% when she remortgages next year.

BBC One used Dawn, a Pilates instructor from Ipswich, to illustrate the pressure. She said she faces a several-hundred-pound increase in her mortgage to stay in the same property. Savers stand to gain if banks pass on higher rates. Claer Barrett, the Financial Times' consumer editor, told BBC Two that savers can find easy-access deals around 5%, though she warned that tax changes will make ISAs more important.

The pound rose to its highest level against a basket of currencies since the Brexit referendum, BBC One and Channel 5 reported, helping to make imports cheaper. Oil prices had fallen sharply after the US midterms, Sky News reported, leaving the next move on rates uncertain. The bank's forecasts remain heavily dependent on the war in Iran and energy prices.